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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission file number 0-20945
MEDI-JECT CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota 41-1350192
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State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization
161 Cheshire Lane, Minneapolis, Minnesota 55441
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 475-7700
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 17, 2000, was approximately $7,012,000 (based upon the
last reported sale price of $5.06 per share on March 17, 2000, on the Nasdaq
Small Cap Market).
There were 1,424,729 shares of our common stock outstanding as of March 17,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G, certain responses in Part III are
incorporated herein by reference to information contained in the Company's
definitive Proxy Statement for its 2000 annual meeting to be filed on or before
April 29, 2000.
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Forward Looking Statements
Certain statements included in this Form 10-K are "forward looking
statements" as defined in the Private Securities Litigation Reform Act of 1995
and are subject to risks and uncertainties. Factors that may affect future
results and performance are set forth in Exhibit 99, "Cautionary Statements",
which was filed with the United States Securities and Exchange Commission as an
exhibit to Form 10-K, December 31, 1996.
PART I
Item 1. BUSINESS
General
Medi-Ject Corporation ("Medi-Ject") develops, manufactures and markets
novel medical devices, called jet injectors, that allow people to self-inject
drugs without using a needle. We make a small spring-action device and the
attached disposable plastic syringes to hold the drug. A liquid drug is drawn up
into the syringe through a small hole at the end. When the syringe is held
against the body and the spring is released, a piston drives the fluid stream
into the tissues beneath the skin. A person may re-arm the device and repeat the
process or attach a new sterile syringe between injections. These devices
operate without a needle at very high energy forces. Recently we have developed
a variation of the jet injector by adding a very small hidden needle. We are
thus able to greatly reduce the energy needed for injection and successfully
build small disposable injectors. Many people find our injectors to be less
threatening than ordinary needles and syringes, yet the market for such devices
remains small. We believe that the key to widespread market acceptance of our
injectors depends upon continued improvements in technology and improved
awareness among pharmaceutical companies, healthcare professionals and
consumers.
We believe that people will benefit from Medi-Ject injection systems for
several reasons. Needle-free injection (i) eliminates the need to pierce oneself
with needles for each injection, which should lead to increased compliance with
a prescribed injection regimen and, consequently, reduce health complications
and associated costs, (ii) provides the ability to inject oneself discreetly,
and (iii) eliminates the need for sharps disposal of used needles.
The injection systems with small hidden needles provide similar advantages
while (i) accommodating drugs that require additional delivery features, such
as, higher liquid volume, and (ii) providing a less expensive and totally
disposable system in situations that call for only a few injections in the home.
The small hidden needle devices are in advanced clinical testing and are
anticipated to reach the market in a few years.
All parties involved in healthcare may benefit from injection systems that
improve home drug delivery. For example, health insurance companies may benefit
from the decrease in the cost linked to poor patient compliance or the cost
associated with hospitalization. Based upon recent industry interest, we believe
that pharmaceutical companies are prepared to use jet injection to differentiate
their products in the marketplace, which may result in increased sales and
larger market share. Physicians and patients benefit from the many new,
self-injected drugs that treat previously unmanageable diseases.
Medi-Ject was a pioneer in the invention of home needle-free injection
systems in the late 1970s. Earlier needle-free injection systems were powered by
large air compressors, so their use was limited to vaccinations by the military
or school health programs. Early injectors were painful in comparison to today's
injectors, and they were large. Our first home insulin injector was five times
as heavy as the current injector, which weighs five ounces. Acceptance of our
insulin injectors has gradually expanded as functionality and ease of use have
improved and the purchase price has been reduced. Our first growth hormone
injector was introduced in Europe in 1994. Distribution of growth hormone
injectors has expanded to include Japan and other Asian countries.
Medi-Ject is a Minnesota corporation, incorporated in February 1979. Our
offices are located at 161 Cheshire Lane, Minneapolis, Minnesota 55441;
telephone (612) 475-7700.
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Industry Trends
We believe that the requirement to inject drugs has and will continue to
hinder their acceptance, reducing patient compliance with treatment programs. We
believe that most people view piercing their skin with a needle as unpleasant.
In addition, treating diabetes often involves taking insulin during the working
or school day, and people are often reluctant to use needles in public because
needles are frequently associated with illegal drug use and cause fear of
accidental needle sticks in others. The failure to take all prescribed
injections can lead to increased health complications for the patient, decreased
drug sales for pharmaceutical companies and increased healthcare costs for
insurance companies. In addition, conventional syringe needles require special
and often costly disposal methods.
These factors have led pharmaceutical manufacturers to explore many
alternatives to needle delivery, including transdermal patches, special oral
delivery formulations and inhalation devices. In Western Europe, pharmaceutical
and medical products companies market popular, attractive pen-like injection
systems with small needles. Many Europeans are willing to pay a premium for
these systems over traditional needles and syringes. Despite promising
alternatives on the horizon, we believe that injection will continue as the
major delivery method. Many drugs are protein biopharmaceuticals which are
destroyed in the gastrointestinal tract, do not readily penetrate the skin or
are not easily formulated to be absorbed through the lungs. Furthermore, the
re-formulation of these medications for alternative delivery systems is a
costly, lengthy and risky endeavor.
In addition to the increase in the number of drugs requiring
self-injection, changes in the frequency of insulin injections for the treatment
of diabetes also may contribute to an increase in the number of self-injections.
For many years, standard treatment protocol was for insulin to be administered
once or twice daily for the treatment of diabetes. However, according to recent
studies, tightly controlling the disease by, among other things, administration
of insulin as many as four to six times a day, can decrease its debilitating
effects. We believe that as the benefits of tightly controlling diabetes become
more widely known, the number of insulin injections self-administered by people
with diabetes will increase. The need to increase the number of insulin
injections given per day may also motivate diabetics to seek an alternative to
traditional needles and syringes.
While our marketing efforts are not currently focused on drug applications
administered by healthcare professionals, needle-free injection systems may be
attractive to hospitals, doctors' offices and clinics, and we may explore such
applications in the future. The issues raised by accidental needle sticks and
disposal of used syringes have led to the development of syringes with sheathed
needles as well as the practice of giving injections through intravenous tubing
to reduce the number of contaminated needles. In 1998, the State of California
banned the use of exposed needles in hospitals and doctors' offices. We believe
that needle-free injection systems may be attractive to healthcare professionals
as a further means to reduce accidental needle sticks and the burdens of
disposing of contaminated needles. Furthermore, certain drugs, particularly
experimental DNA vaccines, may actually be more effective if delivered by jet
injection.
Market Opportunity
An estimated nine to 12 billion needles and syringes are sold annually
worldwide according to industry sources. We believe that a significant portion
of these are used for the administration of drugs that could be delivered using
our injectors but that only a small percentage of people who self-administer
drugs currently use jet injection systems.
Our focus is on the market for the delivery of self-administered injectable
drugs. The largest and most mature segments of this market consist of the
delivery of insulin for diabetics and human growth hormone for children with
growth retardation. In the U.S., over 3.2 million people inject insulin for the
treatment of diabetes, resulting in an estimated 2.3 billion injections
annually, and we believe that the number of insulin injections will increase
with time as the result of new diabetes management techniques which recommend
more frequent injections. A second, attractive market has developed with growth
hormone; children suffering from growth retardation take daily hormone
injections for an average of five years. Most children are exceptionally needle
adverse, and our distributors in Europe, Japan and Asia have made significant
inroads using our injectors in their markets. Other injectable drugs that are
presently self-administered and may be suitable for injection with our systems
include therapies for the prevention of blood clots and the treatment of
multiple sclerosis, migraine headaches, impotence, hormone therapy, AIDS and
hepatitis. We also believe that many injectable drugs that are now under
development will be given by self-injection once they reach the market.
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Products and Technology
Based in part upon the results of marketing and clinical studies performed
by us, we believe that injections using a Medi-Ject injection system are
considered more comfortable and more discreet than injections using a
conventional needle and syringe.
Current Needle-Free Injection Systems
Currently, we market two needle-free systems. The Medi-Jector Choice was
introduced in December 1996 and consists of a coil spring mechanism, a dosage
meter, a multi-use disposable needle-free syringe and a plastic vial adapter. A
small, easier to use model, the Medi-Jector Vision was introduced in October
1999. The Vision replaced the Choice in the U.S. insulin market and will
gradually replace the Choice in international markets. Each injector model is
operated by first compressing a coil spring mechanism and then filling the
attached disposable plastic syringe from a multi-use medication vial. The proper
dosage is displayed in the dosage window. An injection is given by holding the
injector perpendicular to the skin in a location appropriate for the injection
and pressing the trigger button. An injector is recommended for 3,000
injections, and the needle-free plastic syringes are recommended for 7-21
injections, depending upon the drug and schedule of injections.
The U.S. retail price of the Medi-Jector Vision insulin device (excluding
the needle-free syringe) is $299. The total annual cost to the end user of
needle-free syringes and related supplies is approximately $250 per year (based
upon an average of two injections per day). The needle-free syringes used with
any of the injector systems do not require special disposal. Once a needle-free
syringe is removed from the device portion of the system, it cannot pierce the
skin; consequently, the risk of cross-infection from discarded needle-free
syringes is reduced significantly over the risk associated with needles.
New Product Research and Development
We continue to dedicate much of our financial resources and personnel
toward improving our existing products and developing new products and
technology. Specifically, we are currently developing three new injector
platforms. One platform, code named the MJ-8, represents a new concept in
needle-free delivery, incorporating a smaller power pack with a self-contained
medicinal cartridge. A second platform, referred to as the AJ-1, combines a very
low energy power source with a small hidden needle to offer a totally
disposable, single injection system best suited for high volume doses or
medications that require infrequent injections. A third platform, referred to as
the MJ-10, is a needle-free version of the disposable injector. We believe that
this diverse development program will offer pharmaceutical manufacturers a broad
and attractive array of delivery choices while providing consumers with less
expensive and more user-friendly injectors.
MJ-8 Injector. We believe the major obstacle to widespread market
acceptance of needle-free injection systems has been the lack of a suitably
compact and easy to use injector. Although we have reduced the size and
complexity of our injectors over the years, we believe further reduction in size
is possible by limiting delivery of a single dose to 0.25ml or less. To this
end, we have targeted the European insulin market where most people with
diabetes take four injections daily of 0.10ml to 0.15ml. Smaller doses require
less energy and smaller energy sources. The space conserved by reducing the
energy source is used to store a vial cartridge within the device, adding
further user convenience. Prototypes of this platform are scheduled to be tested
in clinical trials during the second quarter of 2000 and to reach the market in
2001.
AJ-1 Injector. The coil springs of our commercial needle-free injectors
limit injection volume to 0.5ml; larger fluid volumes require larger springs and
are therefore impractical. Nevertheless, injection volumes of 1.0ml or more are
not uncommon. In 1998, our engineers found that they could greatly reduce the
size of the coil spring by adding a very short, hidden needle. They concluded
that breaking the very outer layers of the skin with a small needle allows very
low energy jet injection. At lower energies, the devices could hold the drug in
small, standard, single dose cartridges. We built and successfully tested a
small, pre-filled, totally disposable small needle injector during 1999.
Engineers with Elan Corporation plc ("Elan"), a drug delivery company based
in Ireland, had developed additional proprietary technologies that complement
the Medi-Ject AJ-1 design, and in November 1998, Medi-Ject licensed the
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Elan technology for certain applications. During the fourth quarter of 1999, we
collaborated with an undisclosed pharmaceutical manufacturer to successfully
adapt the design to a novel drug formulation. Should this project continue to
market, introduction could occur in 2003.
MJ-10 Injector. Several needle-free injection companies and pharmaceutical
manufacturers are pursuing needle-free versions of the AJ-1 device with only
limited success. Our engineers believe that they have identified unique
opportunities in this field, and we are proceeding with product development.
Prototype disposable needle-free injectors will be built and tested toward the
end of 2000.
We have expended approximately $2,413,000, $3,517,000 and $2,418,000 on
research and development efforts during fiscal years 1997, 1998 and 1999,
respectively. Of these amounts, approximately $2,030,000, $527,000 and
$1,381,000, respectively, were funded by third-party sponsored development
programs and licensing fees.
Target Markets
We intend to target the following markets for use of the injector systems.
To date, the Medi-Ject systems have been approved for use in the U.S., Japan,
European and certain South East Asian countries for the administration of only
insulin and human growth hormone.
Insulin
Approximately 3.2 million people in the U.S. (approximately 40% of the
worldwide market) take insulin daily for the control of high blood sugar
observed in individuals with diabetes, according to the National Institutes of
Health. In the U.S., most individuals take two injections daily, often combining
short acting insulin and long acting insulin. In the U.S., the vast majority of
insulin users use disposable plastic syringes and needles, while in Western
Europe and Japan, the majority use pen-like injectors that hold small vial
cartridges of insulin and use small needles. The management of diabetes has been
found to be benefited by a more disciplined approach to glucose management,
including, among other things, more frequent injections. Such regimens are
referred to as "tight control" and have been proven to reduce long-term
complications such as heart disease, strokes, neuropathy (degeneration of the
nervous system), kidney failure and loss of vision. Needle-free injectors have
been available to, and used by, diabetes patients with a serious aversion to
needles for many years, and for these patients, the cost and complexity of
earlier injectors was not a significant barrier to use. We believe that another,
much larger group of individuals, not seriously averse to needles yet still
reluctant to pierce themselves, find it difficult to comply with injection
regimens. We believe that recent improvements in our technology make our
injectors more attractive to users in this market segment. This belief is
supported by small but significant sales and market share gains in the past two
years. Also, it is evident by recent interest expressed in the Medi-Jector
Vision by a number of prominent diabetes product distributors in the U.S. and
Europe with the signing of two new distributors in the first quarter 2000 and
the anticipated signing of an additional two in the second quarter.
Human Growth Hormone
Approximately 52,000 children worldwide receive frequent injections of
human growth hormone for the treatment of growth retardation according to
industry sources. The disease may be diagnosed as early as age three, with
injections administered until bone maturity is reached at age seventeen or
beyond. The hormone drug used for the treatment of this condition costs an
estimated $20,000 or more at the wholesale level annually. Despite the use of
pen-like needle injection systems, which are more convenient to use than
traditional needles, compliance with the prescribed injection regimen continues
to be a problem. A study in Germany found that 36% of children on human growth
hormone therapy did not fully comply with the therapy using needle injections.
In addition, a study performed in the Netherlands showed that a majority of
children in the study preferred to have their human growth hormone administered
using a Medi-Ject needle-free system rather than a pen-like needle injector. We
believe that our needle-free injector system offers a marketing advantage to the
three pharmaceutical companies now distributing our growth hormone injectors.
Erectile Dysfunction
Studies estimate the number of men in the U.S. suffering from impotence at
over 15 million. The causes, earlier thought to be mainly psychogenic, are now
thought to be most often a natural result of aging or a complication of
diabetes, prostate cancer surgery or other physiological causes. Over ten years
ago, it was observed that penile
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injections of vasoactive (blood vessel relaxing) drugs caused temporary
erections sufficient to allow satisfactory sexual intercourse. Despite the
recent introduction of an oral impotence therapy, penile injection remains an
important therapy for men with advanced stages of the disease. The first drug
approved for injection in the U.S. was the generic drug prostaglandin E1, also
called alprostadil. However, we believe that use of this drug has been hindered
because penile self-injection is difficult and viewed as unpleasant by most men.
As a result, one company has introduced an intra-urethral alprostadil
applicator, but this method of treatment is not as effective as the injections.
The fluid stream from our insulin or growth hormone injectors does not penetrate
deep enough to reach the penile erectile tissues, but we have added several
design changes and can now effectively deliver saline to the proper location
needle-free. We plan to complete one or more clinical studies using active drug
in 2000 to determine whether our injector will be effective in the treatment of
erectile dysfunction.
Other Target Markets
We have targeted other injectable drugs that are regularly
self-administered. These include narcotic analgesics, the anticoagulant heparin
used to prevent blood clots, certain hormone therapies and drugs to treat
osteoporosis, multiple sclerosis, AIDS and other blood disorders.
Although we have chosen to focus initially on self-injection opportunities,
similar opportunities exist in hospitals, doctors' offices, clinics, nursing
homes and hospices. Certain opportunities may address the concern for well
being, such as the vaccination of small children, and others may be prompted by
the danger of accidental needle sticks in high risk environments, such as the
emergency room of a hospital.
One area of intense research activity is the delivery of DNA vaccines. In
1999, a study was published demonstrating enhanced efficacy of DNA vaccines
using our injector. We have entered into a joint venture with BioSante
Pharmaceuticals to evaluate the efficacy of their experimental DNA vaccine
technology with our injectors.
Patents
We, when appropriate, actively seek protection for our products and
proprietary information by means of U.S. and foreign patents and trademarks. We
currently hold eight U.S. patents, one Japanese patent, one Taiwanese patent and
one Canadian patent. We also have 14 other patent applications being considered
in the U.S. and various countries throughout the world.
Some of our technology is developed on our behalf by independent outside
contractors. To protect the rights of our proprietary know-how and technology,
our policy requires all employees and consultants with access to proprietary
information to execute confidentiality agreements prohibiting the disclosure of
confidential information to anyone outside the Company. These agreements also
require disclosure and assignment to the Company of discoveries and inventions
made by such individuals while devoted to Company-sponsored activities.
Companies with which we have entered into development agreements have the right
to certain technology developed in connection with such agreements.
Manufacturing
We operate a manufacturing facility in compliance with current Quality
System Regulations ("QSR") established by the Food and Drug Administration
("FDA") and by the centralized European regulatory authority (ISO 9001 and EN
46,001). Injector and disposable parts are manufactured by third-party suppliers
and assembled at our facility in Plymouth, Minnesota. Quality control and final
packaging are performed on site. We anticipate a need to invest in automated
assembly equipment as volume increases in the future. Becton Dickinson has the
right to manufacture the disposable plastic components of certain injector
systems for us in exchange for royalty payments. In 1999, we manufactured two
injector prototypes in Asia.
Marketing
Our basic business strategy is to develop and manufacture new products
specific to certain pharmaceutical applications but to market through the
existing distribution systems of pharmaceutical and medical device companies. In
some instances pharmaceutical companies may choose to give the injection systems
and disposable components to
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users without charge as an inducement to customers to use their products. In
other instances, the marketing partner may be a medical device distributor with
distribution skills unique to a specific drug.
With respect to current selling efforts, our relationship with Ferring, NV
best reflects this basic strategy. Ferring is selling human growth hormone
throughout Europe with a marketing campaign tied exclusively to the Medi-Ject
needle-free delivery system. Ferring has been successful in establishing a user
base of more that 1,000 children for its drug using the Medi-Ject needle-free
system. In the Netherlands, where they enjoy their largest market share, 22% of
children taking growth hormone use our injector. In 1999, SciTech Genetics began
Asian distribution of our growth hormone injectors along with their drug.
During 1999, our international sales revenue accounted for 68% of our total
product sales revenue. Europe (primarily Germany) accounted for 73% of
international product sales revenue with the remainder coming primarily from
Asia. Two customers accounted for 85% of international product sales revenue and
58% of worldwide product sales revenue.
Our business development efforts are focused on entering into collaborative
agreements with pharmaceutical companies. The table below summarizes our current
collaborative and distribution agreements.
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Company Market
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Ferring NV.............................. Growth Hormone
(Europe)
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JCR Pharmaceuticals Co., Ltd............ Growth Hormone
(Japan)
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SciGen Pte Ltd.......................... Growth Hormone
(Asia/Pacific)
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Bio-Technology General Corporation ..... Growth Hormone
(United States)
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Chronimed (February 2000)............... Insulin - Direct Sales
(United States)
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drugstore.com .......................... Insulin - E-Commerce
(United States)
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MediSense (Abbott Laboratories) ........ Insulin - Distribution
(Norway, Sweden)
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Beijing Wilcon, Ltd. ................... Insulin - Distribution
(China)
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Direct Trading International ........... Insulin - Distribution
(Czech Republic)
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Prosamed ............................... Insulin - Distribution
(Germany)
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Organon, a division of Akzo Nobel....... Undisclosed Development Program
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Becton Dickinson and Company (1) ....... Manufacturing - All Applications
(worldwide)
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BioSante Pharmaceuticals ............... DNA vaccine research
(worldwide)
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(1) Becton Dickinson has certain manufacturing rights to our disposable
needle-free syringes for any indication.
In January 1996, we entered into a strategic alliance with Becton Dickinson
that included an exclusive Development and Licensing Agreement, an equity
purchase and a seat on the Board of Directors. The agreement provided Becton
Dickinson with exclusive rights to market the Medi-Jector Vision insulin
injector and subsequent generations of injectors developed as a result of
collaborative development. In addition, Becton Dickinson held the right to
manufacture the disposable components of injector systems. In turn, Becton
Dickinson contributed funding and other resources, including dedicated
engineering skills, to the development program. We believe that with time, both
parties reached the conclusion that the Vision product and its disposable
components would not fulfill the marketing or manufacturing requirements of
Becton Dickinson. Therefore, the Development and Licensing Agreement of 1996 was
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terminated in February 1999 and replaced with a new agreement. Under the terms
of the new agreement, we are free to market the Vision insulin injector and
manufacture disposables in exchange for a payment to Becton Dickinson of a
royalty on sales. Becton Dickinson retains an option to manufacture the
disposable components of the Vision system under certain conditions.
Over the past year, we have taken several steps to increase our U.S.
insulin injector distribution while lowering the associated expense. In February
1999, we established an E-commerce distribution channel that allows purchase
through the Internet, and in October 1999, we began E-commerce distribution with
drugstore.com, a leading Internet pharmacy. In April 1999, the FDA granted us
permission to sell our insulin injectors without requiring a prescription. In
February 2000, we transferred responsibility for the majority of our direct
sales to the Home Service Medical division of Chronimed, a leading direct
diabetes consumer marketing organization.
The most common retail price of a U.S. insulin injector (which can be used
over a period of several years) is $299, and disposable components for the
system cost approximately $250 annually. This compares to an annual cost of
approximately $140 to use two syringes with needles daily. We anticipate that
the retail price of future generations of injector systems will be less than the
current retail price.
We have made progress recently in the European insulin market. Since
establishing distribution and reimbursement in Norway during 1997, we have
extended our European insulin marketing efforts. We have signed insulin injector
distribution agreements with the MediSense division of Abbott Laboratories in
Norway and Sweden, with Prosamed in Germany and with Direct Trading
International in the Czech Republic.
Competition
Competition in the injectable drug delivery market is intensifying. We face
competition from traditional needle syringes, newer pen-like and sheathed needle
syringes and other needle-free injection systems as well as alternative drug
delivery methods including oral, transdermal and pulmonary delivery systems.
Nevertheless, the vast majority of injections currently are administered using
needles. Because injection is typically only used when other drug delivery
methods are not feasible, our needle-free injection systems may be made obsolete
by the development or introduction of drugs or drug delivery methods which do
not require injection for the treatment of conditions we have currently
targeted. In addition, because we intend to enter into collaborative
arrangements with pharmaceutical companies, our competitive position will depend
upon the competitive position of the pharmaceutical company with which we
collaborate for each drug application.
While competition in the needle-free injection market currently is limited
to small companies with modest financial resources, the barriers to entry are
not great, and we anticipate additional competition from companies with greater
financial, commercial, personnel and development resources in the future. Two
companies currently sell injectors to the U.S. insulin market. Medi-Ject
believes that it retains the largest market share and competes on the basis of
device size, price and ease of use.
Another company, Bioject, Inc., has sold a CO2 powered injector since 1993.
Their injector is designed for and used almost exclusively for vaccinations in
doctors' offices or public clinics. In 1998, Bioject purchased the insulin
injector business of Vitajet, and after some months of redesign, they entered
the U.S. insulin injector market. Powderject Pharmaceuticals, Plc, a British
research company, is developing a needle-free injection system, as is Weston
Medical Ltd., another U.K. based company. Both Powderject and Weston Medical
compete actively and successfully for licensing agreements with pharmaceutical
manufacturers.
Even though we expect the needle-free injection market to expand,
improvements continue to be made in needle syringes, including syringes with
hidden needles and pen-like needle injectors. We expect we will compete with
existing needle injection methods as well as new needle injection methods yet to
be developed.
Government Regulation
Our products and manufacturing operations are subject to extensive
government regulations, both in the United States and abroad. In the United
States, the FDA administers the Federal Food Drug and Cosmetic Act (the "FDC
Act") and has adopted regulations, including those governing the introduction of
new medical devices, the observation of
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certain standards and practices with respect to the manufacturing and labeling
of medical devices, the maintenance of certain records and the reporting of
device-related deaths, serious injuries and certain malfunctions to the FDA.
Manufacturing facilities and certain Company records are also subject to FDA
inspections. The FDA has broad discretion in enforcing the FDC Act and the
regulations thereunder, and noncompliance can result in a variety of regulatory
steps ranging from warning letters, product detentions, device alerts or field
corrections to mandatory recalls, seizures, injunctive actions and civil or
criminal actions or penalties.
Drug delivery systems such as our injectors may be approved or cleared for
sale as a medical device or may be evaluated as part of the drug approval
process in connection with a new drug application ("NDA") or a Product License
Application ("PLA"). To the extent permitted under the FDC Act and current FDA
policy, we intend to seek the required approvals and clearance for the use of
our new injectors, as modified for use in specific drug applications such as the
treatment of erectile dysfunction, under the medical device provisions, rather
than under the new drug provisions, of the FDC Act.
Products regulated as medical devices may not be commercially distributed
in the United States unless they have been cleared or approved by the FDA,
unless otherwise exempted from the FDC Act and regulations thereunder. There are
two methods for obtaining such clearance or approvals. Certain products qualify
for a pre-market notification under Section 510(k) of the FDC Act ("510(k)
notification") of the manufacturer's intention to commence marketing the
product. The manufacturer must, among other things, establish in the 510(k)
notification that the product to be marketed is substantially equivalent to
another legally marketed product (that is, that it has the same intended use and
that it is as safe and effective as a legally marketed device and does not raise
questions of safety and effectiveness that are different from those associated
with the legally marketed device). Marketing may commence when the FDA issues a
letter finding substantial equivalence to such a legally marketed device. The
FDA may require, in connection with a 510(k) notification, that it be provided
with animal and/or human test results. If a medical device does not qualify for
the 510(k) procedure, the manufacturer must file a pre-market approval ("PMA")
application under Section 515 of the FDC Act. A PMA must show that the device is
safe and effective and is generally a much more complex submission than a 510(k)
notification, typically requiring more extensive pre-filing testing and a longer
FDA review process. We believe that injection systems, when indicated for use
with drugs or biologicals approved by the Agency, will be regulated as medical
devices and are eligible for clearance through the 510(k) notification process.
There can be no assurance, however, that the FDA will not require a PMA in the
future.
In addition to submission when a device is being introduced into the market
for the first time, a 510(k) notification is also required when the manufacturer
makes a change or modification to an already marketed device that could
significantly affect safety or effectiveness, or where there is a major change
or modification in the intended use or in the manufacture of the device. When
any change or modification is made in a device or its intended use, the
manufacturer is expected to make the initial determination as to whether the
change or modification is of a kind that would necessitate the filing of a new
510(k) notification. The FDA's regulations provide only limited guidance in
making this determination.
If the FDA concludes that any or all of our new injectors must be handled
under the new drug provisions of the FDC Act, substantially greater regulatory
requirements and approval times will be imposed. Use of a modified new product
with a previously unapproved new drug likely will be handled as part of the NDA
for the new drug itself. Under these circumstances, the device component will be
handled as a drug accessory and will be approved, if ever, only when the NDA
itself is approved. Our injectors may be required to be approved as part of the
drug delivery system under a supplemental NDA for use with previously approved
drugs. Under these circumstances, our device could be used with the drug only if
and when the supplemental NDA is approved for this purpose. It is possible that,
for some or even all drugs, the FDA may take the position that a drug-specific
approval must be obtained through a full NDA or supplemental NDA before the
device may be labeled for use with that drug.
To the extent that our modified injectors are handled as drug accessories
or part of a drug delivery system, rather than as medical devices, they are
subject to all of the requirements that apply to new drugs. These include drug
manufacturing requirements, drug adverse reaction reporting requirements, and
all of the restrictions that apply to drug labeling and advertising. In general,
the drug requirements under the FDC Act are more onerous than medical device
requirements. These requirements could have a substantial adverse impact on our
ability to commercialize our products and our operations.
9
<PAGE>
We received 510(k) marketing clearance from the FDA allowing us to market
the Medi-Jector EZ system in February 1987, the Medi-Jector V system in October
1988, the Medi-Jector V system to administer Bio-Technology General
Corporation's human growth hormone in April 1996, and the Medi-Jector Choice
system in October 1996.
We expect in the future to submit 510(k) notifications with regard to
further device design improvements and uses with additional drug therapies.
The FDC Act also regulates our quality control and manufacturing procedures
by requiring us and our contract manufacturers to demonstrate compliance with
the current Quality System Regulations ("QSR"). The FDA's interpretation and
enforcement of these requirements have been increasingly strict in recent years
and seems likely to be even more stringent in the future. The FDA monitors
compliance with these requirements by requiring manufacturers to register with
the FDA and by conducting periodic FDA inspections of manufacturing facilities.
If the inspector observes conditions that might violate the QSR, the
manufacturer must correct those conditions or explain them satisfactorily.
Failure to adhere to QSR requirements would cause the devices produced to be
considered in violation of the FDA Act and subject to FDA enforcement action
that might include physical removal of our devices from the marketplace.
The FDA's Medical Device Reporting Regulation requires that we provide
information to the FDA on the occurrence of any death or serious injuries
alleged to have been associated with the use of our products, as well as any
product malfunction that would likely cause or contribute to a death or serious
injury if the malfunction were to recur. In addition, FDA regulations prohibit a
device from being marketed for unapproved or uncleared indications. If the FDA
believed that we were not in compliance with these regulations, it could
institute proceedings to detain or seize our devices, issue a recall, seek
injunctive relief or assess civil and criminal penalties against us or our
executive officers, directors or employees.
We also are subject to the Occupational Safety and Health Act ("OSHA") and
other federal, state and local laws and regulations relating to such matters as
safe working conditions, manufacturing practices, environmental protection and
disposal of hazardous or potentially hazardous substances.
Sales of medical devices outside of the U.S. are subject to foreign legal
and regulatory requirements. Our injection systems have been approved for sale
only in certain foreign jurisdictions. Legal restrictions on the sale of
imported medical devices vary from country to country. The time required to
obtain approval by a foreign country may be longer or shorter than that required
for FDA approval, and the requirements may differ. We rely upon the companies
marketing our injectors in foreign countries to obtain the necessary regulatory
approvals for sales of our injectors in those countries. Generally, devices
having an effective 510(k) clearance or PMA may be exported without further FDA
authorization.
We have obtained ISO 9001/EN 46001 systems. This certification shows that
our procedures and manufacturing facilities comply with standards for quality
assurance and manufacturing process control. Such certification, along with
European Medical Device Directive certification, evidence compliance with the
requirements enabling us to affix the CE Mark to our current products. The CE
Mark denotes conformity with European standards for safety and allows certified
devices to be placed on the market in all European Union ("EU") countries.
Employees
As of December 31, 1999, we employed 36 full-time and 4 part-time
employees. None of our employees are represented by any labor union or other
collective bargaining unit. We believe that our relations with our employees is
good.
Liability Insurance
The business of the Company entails the risk of product liability claims.
Although we have not experienced any material product liability claims to date,
any such claims could have a material adverse impact on our business. We
maintain product liability insurance with coverage of $1 million per occurrence
and an annual aggregate maximum of $5 million. We evaluate our insurance
requirements on an ongoing basis.
10
<PAGE>
Item 2. DESCRIPTION OF PROPERTY.
We lease approximately 23,000 square feet of office, manufacturing and
warehouse space in Plymouth, a suburb of Minneapolis, Minnesota. The lease will
terminate in April 2002. We believe our facility will be sufficient to meet our
requirements through such time.
Item 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Franklin Pass, M.D. ....... 63 President, Chief Executive Officer and
Chairman of the Board of Directors
Lawrence Christian ........ 57 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Peter Sadowski, Ph.D. ..... 52 Executive Vice President and Chief
Technology Officer
Franklin Pass, M.D., joined the Company as a director and consultant in
January 1992 and has served as our President, Chief Executive Officer and
Chairman of the Board of Directors since February 1993. From 1990 to 1992, Dr.
Pass served as President of International Agricultural Investments, Ltd., an
agricultural technology consulting and investment company. Dr. Pass, a physician
and scientist, was Director of the Division of Dermatology at Albert Einstein
College of Medicine from 1967 to 1973, the Secretary and Treasurer of the
American Academy of Dermatology from 1978 to 1981 and the co-founder and Chief
Executive Officer of Molecular Genetics, Inc., now named MGI Pharma, Inc., from
1979 to 1986. He is the author of more than 40 published medical and scientific
articles. Dr. Pass serves on the board of directors of Verdant Brands Inc., a
manufacturer of lawn and garden care products.
Lawrence Christian joined the Company in March 1999 as Vice President,
Finance & Administration, Chief Financial Officer and Secretary. Mr. Christian
took early retirement from 3M after a 16-year career. Since 1996 Mr. Christian
had been 3M Financial Manager - World-Wide Corporate R&D and Government
Contracts involved in organizing new business venture units and
commercialization of new technologies. Prior to 1996 Mr. Christian served as
Financial Merger - Government Contracts, European Controller and Division
Controller within 3M. Prior to joining 3M in 1982, Mr. Christian was Vice
President/CFO of APC Industries, Inc., a closely-held telecommunications
manufacturing company in Texas.
Peter Sadowski, Ph.D., joined the Company in March 1994 as Vice President,
Product Development. He was promoted to Executive Vice President and Chief
Technology Officer in 1999. From October 1992 to February 1994, Dr. Sadowski
served as Manager, Product Development for GalaGen, Inc., a biopharmaceutical
company. From 1988 to 1992, he was Vice President, Research and Development for
American Biosystems, Inc., a medical device company. Dr. Sadowski holds a Ph.D.
in microbiology.
11
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Our Common Stock has traded on the Nasdaq Small Cap Market of the Nasdaq
Stock Market since March 8, 1999. Prior to that time, the Common Stock traded on
the Nasdaq National Market of the Nasdaq Stock Market. The Common Stock is
traded under the symbol MEDJ. The following table sets forth the per share high
and low sales prices of our Common Stock for each quarterly period during the
two most recent fiscal years. Sales prices are as reported by the Nasdaq Stock
Market. All figures have been adjusted for a one-for-five reverse split
effective January 28, 1999.
High Low
---- ---
1998:
First Quarter $14.375 $7.500
Second Quarter 12.500 6.500
Third Quarter 9.688 5.625
Fourth Quarter 5.625 1.563
1999:
First Quarter 5.375 1.625
Second Quarter 7.000 1.281
Third Quarter 4.219 1.875
Fourth Quarter 3.875 1.500
Common Shares Holders
As of March 17, 2000, there were 127 holders of record of the Company's
common stock, with another estimated 2,099 shareholders whose stock is held by
nominees or broker dealers.
Dividends
We have not paid or declared any cash dividends on our common stock during
the past five years. We have no intention of paying cash dividends in the
foreseeable future on common stock. We are liable to pay semi-annual dividends
on Series A Convertible Preferred Stock at a rate of 10%, payable on May 10 and
November 10 each year. In addition to the stated 10% dividend, we are also
obligated to pay foreign tax withholding on the dividend payment, which equates
to an effective dividend rate of 14.2%. Such foreign tax withholding payments
have been reflected as dividends since they are non-recoverable.
Sales of Unregistered Securities
On November 10, 1998, we sold 1,000 shares of Series A Convertible
Preferred Stock ("Series A") and warrants to purchase 56,000 shares of Common
Stock to Elan International Services, Ltd., for total consideration of
$1,000,000. The Series A carries a 10% dividend which is payable semi-annually.
In addition to the stated 10% dividend, we are also obligated to pay foreign tax
withholding on the dividend payment, which equates to an effective dividend rate
of 14.2%. Such foreign tax withholding payments have been reflected as dividends
since they are non-recoverable. The Series A is redeemable at our option at any
time and is convertible into Common Stock for sixty days following the 10th
anniversary of the date of issuance at the lower of $7.50 per share or 95% of
the market price of the Common Stock. Under certain limited circumstances where
certain conditions fail to be met, the Series A may be converted at our election
within 30 days of the second anniversary of the date of issuance at the market
price of the Common Stock at such time. The warrants to purchase Common Stock
may be exercised at any time prior to November 10, 2005, at a price of $15.00
per share. The proceeds from the sale of these securities were used primarily to
fund the purchase of certain technology from Elan Corporation. There was no
underwriter involved and no fees were paid to any other parties in connection
with this transaction. These securities were exempt from registration because
they were issued to a single accredited investor in a private placement pursuant
to Section 4(2) of the Securities Act of 1933.
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<PAGE>
On December 22, 1999, we sold 250 shares of Series B Convertible Preferred
Stock ("Series B") to Bio-Technology General Corporation for total consideration
of $250,000. The Series B does not carry a dividend rate. The Series B will
convert to Common Stock on the latter of (i) the date of occurrence of
Permissible Conversion Events or (ii) June 30, 2001. The Permissible Conversion
Events are a combination of increasing our authorized Common Stock from
3,400,000 shares to at least 10,000,000 shares and receiving necessary approvals
under the Nasdaq listing requirements. The conversion price will be the lower of
(i) the average of the closing prices per share of our Common Stock for the
twenty (20) consecutive trading days immediately preceding the conversion date,
or (ii) $2.50 per share. The Series B has certain preference rights over holders
of Common Stock and is subordinated to Series A. The proceeds from the sale of
these securities were used primarily for working capital. There was no
underwriter involved and no fees were paid to any other parties in connection
with this transaction. These securities were exempt from registration because
they were issued to a single accredited investor in a private placement pursuant
to Section 4(2) of the Securities Act of 1933.
Item 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 36 $ 11,039 $ 7,283 $ 2,852 $ 85
Working capital (deficit)................ (650) 11,187 7,804 3,068 (198)
Total assets............................. 1,240 12,956 10,047 5,334 2,010
Long-term liabilities, less current
maturities............................... 136 8 2 - 54
Accumulated deficit...................... (9,302) (11,540) (14,512) (20,296) (24,148)
Total shareholders' equity (deficit)..... $ (74) $ 12,120 $ 9,337 $ 4,630 $ 1,053
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales.................................... $ 1,654 $ 1,838 $ 1,687 $ 2,172 $ 2,101
Licensing and product development............. 921 1,854 2,030 527 1,381
------- -------- --------- -------- --------
Revenues............................... 2,575 3,692 3,717 2,699 3,482
------- -------- --------- -------- --------
Cost of sales............................ 1,049 1,136 1,221 1,854 1,786
Research and development................. 1,195 2,585 2,413 3,517 2,418
Sales and marketing........................... 887 1,019 1,540 948 1,058
General and administrative............... 1,237 1,397 1,983 2,426 1,831
------- -------- --------- -------- --------
Operating expenses..................... 4,368 6,137 7,157 8,745 7,093
------- -------- --------- ------- --------
Net operating loss....................... (1,793) (2,445) (3,440) (6,046) (3,611)
Net other income (expense)............... (89) 207 468 276 (92)
------- -------- --------- -------- ---------
Net loss................................. $(1,882) $ (2,238) $ (2,972) $ (5,770) $ (3,703)
======= ========= ========== ======== ========
Net loss per common share (1), (2), (3) ...... $(43.03) $ (4.22) $ (2.12) $ (4.07) $ (2.70)
======= ========= ========== ======== ==========
Weighted average number of
common shares (3) ............................ 44 530 1,402 1,421 1,425
</TABLE>
(1) Basic and diluted loss per share amounts are identical as the effect of
potential common shares is anti-dilutive.
(2) We have not paid any dividends on our Common Stock since inception. In
November 1998, we issued a new Series A Convertible Preferred Stock which
requires the payment of dividends. The 1998 and 1999 loss per common share
has been adjusted to reflect the accrual of these dividends.
(3) All share and per share figures have been retroactively adjusted for a
one-for-five reverse stock split effective January 28, 1999.
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Medi-Ject Corporation designs, manufactures and markets needle-free and
small-needle injection systems. In 1993, we hired a new management team with the
goal of revitalizing and redefining our strategic direction. Since that time,
product development efforts have increased, emphasizing reductions in the cost
of our systems to make them more competitive in the marketplace. In addition,
marketing efforts have been focused on expanding the use of needle-free
injection systems for injectable drugs other than insulin. As part of this
effort to encourage broader use of needle-free injection systems, the Company
began entering into technology and product license agreements to sell injector
systems. The licensing and development income from these agreements has been
used primarily to fund increased product development efforts. Development
efforts have resulted in new generations of injector systems; the Medi-Jector
Choice system, introduced in December 1996, which incorporates molded plastic
components rather than tooled steel components and a disposable needle-free
syringe, and the Medi-Jector Vision system, introduced in October 1999, which is
easier to use and provides a longer life disposable needle-free syringe. Current
development efforts are primarily oriented toward improved injection quality,
improved features, ease of use, and continued size and cost reduction.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1999
Revenues increased from approximately $2,699,000 in 1998 to approximately
$3,482,000 in 1999, or approximately 29%. This increase was primarily due to an
increase in licensing and development fee income of approximately $854,000 or
162% offset in part by a decrease in product sales of approximately $71,000 or
3%. Product sales include sales of injectors, related parts, disposable
components, and repairs. The total number of devices sold decreased from 4,178
in 1998 to 3,970 in 1999, a decrease of 5%, while revenue from the sale of
disposable parts increased 5%.
The product sales decrease is due primarily to the decreased sales of
growth hormone injectors in international markets that reflected strong sales in
1998 due to initial market entry. The decrease was offset in part by higher
sales in the domestic insulin market following FDA approval of the sale of our
device without prescription, increased advertising and a new model introduction
in the fourth quarter.
Licensing and development fee income increased primarily due to settlement
in March 1999 of obligations under a contract with Schering-Plough Corporation
dated January 20, 1999. We received a one-time payment of an undisclosed amount
from Schering-Plough in exchange for cancellation of a product purchase order
and as reimbursement for certain non-cancelable manufacturing expenses. We
expect that licensing and development fee income will continue to fluctuate on a
quarter to quarter basis, depending on a number of factors including the timing
of the execution of new development and licensing agreements and the timing,
nature and size of fee payments to be made under existing and new agreements. In
addition, since we do not recognize project-based fee income until related
development work has been performed, quarterly results will fluctuate with the
timing of our research and development efforts.
Cost of sales decreased from approximately $1,854,000 in 1998 to
approximately $1,785,000 in 1999, a decrease of 4%. This decrease relates
primarily to the 21% decrease in unit sales of products used in growth hormone
applications, partially offset by an increase in cost of sales due to increases
in disposables production.
Manufacturing overhead decreased from $1,139,000 in 1998 to $872,000 in
1999, a decrease of 23%. The substantial portion of this decrease was due to the
staffing reduction completed in October 1998.
Research and development expenses decreased from approximately $3,517,000
in 1998 to approximately $2,418,000 in 1999, a decrease of 31%. The decrease in
1999 is mainly due to the one-time purchase of proprietary needle-based
injection technology in 1998 from Elan Corporation, plc.
14
<PAGE>
Sales and marketing expenses increased approximately $110,000 or 12% from
$948,000 in 1998 to $1,058,000 in 1999. This increase is due primarily to
increased expenses generated for advertising, web-site introduction, preparation
for e-commerce sales and literature related to the launch of a new line of
products in the fourth quarter of 1999.
General and administrative expenses decreased from approximately $2,427,000
in 1998 to approximately $1,831,000 in 1999, a decrease of $595,000 or 25%. This
decrease was primarily driven by three factors. The first was a decrease in
payroll costs of approximately $197,000 attributable to staffing reductions
completed in October 1998. The second factor was a decrease of $161,000 in
patent amortization and depreciation expense. This decrease relates primarily to
a 1998 write down of capitalized patent costs related to a novel injector energy
source. The third factor contributing to the decrease in general and
administrative expenses for the period was a decrease of approximately $72,000
in travel expenses mainly due to reduced staffing in this department. Legal and
business insurance expense also decreased by $72,000 related to planned spending
reductions.
Interest and other income decreased from approximately $292,000 in 1998 to
approximately $66,000 in 1999, a decrease of $226,000. This decrease is
attributable to reduced interest earnings on lower average cash reserves during
1999. Interest and other expense increased by $143,000 from $15,000 in 1998 to
$158,000 in 1999 due primarily to a settlement of a product development dispute.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
Revenues decreased from approximately $3,717,000 in 1997 to approximately
$2,699,000 in 1998, a decrease of approximately 27%. This decrease was primarily
due to a decrease in licensing and development fee income of approximately
$1,503,000 or 74% offset in part by an increase in product sales of
approximately $485,000 or 29%. Product sales include sales of injectors, related
parts and disposable components, repairs and freight. The total number of
devices sold increased from 3,391 in 1997 to 4,178 in 1998, an increase of 23%,
and revenue from the sale of disposable parts increased 63%.
The product sales increase is due primarily to the increased sales in the
human growth hormone market. The increase was offset in part by lower sales in
the domestic insulin market following a reduction in sales efforts in this area.
The increase in disposable parts revenue is primarily due to the increase in
device sales in the human growth hormone market.
Licensing and development fee income decreased primarily due to completion
in December 1997 of a two year product development funding contract with Becton
Dickinson Company. We expect that licensing and development fee income will
continue to fluctuate on a quarter to quarter basis, depending on a number of
factors including the timing of the execution of new development and licensing
agreements and the timing, nature and size of fee payments to be made under
existing and new agreements. In addition, since we do not recognize project
based fee income until related development work has been performed, quarterly
results will fluctuate with the timing of our research and development efforts.
The product sales increase is due primarily to the increased sales in the
human growth hormone market. The increase was offset in part by lower sales in
the domestic insulin market following a reduction in sales efforts in this area.
The increase in disposable parts revenue is primarily due to the increase in
device sales in the human growth hormone market.
Cost of sales increased from approximately $1,221,000 in 1997 to
approximately $1,854,000 in 1998, an increase of approximately 52%. This
increase relates primarily to an increase in the amount of product sold in 1998
along with higher overall manufacturing overhead. Manufacturing overhead
increased primarily due to increased scrap, depreciation and compensation
expense. A majority of the approximately $100,000 increase in scrap expense
relates to the discontinuance of an older product line and the cost to relieve
inventory of certain parts. The depreciation expense increase is primarily due
to the introduction of certain new product tooling. Compensation expense
increased due to scale up efforts in anticipation of a large order from Schering
Plough that did not materialize.
Research and development expenses increased from approximately $2,413,000
in 1997 to approximately $3,517,000 in 1998, an increase of approximately 46%.
This increase is mainly due to the purchase of proprietary needle based
injection technology from Elan Corporation, plc.
15
<PAGE>
Sales and marketing expenses decreased from approximately $1,540,000 in
1997 to approximately $948,000 in 1998, a decrease of approximately 38%. Reduced
expenses in the sales and marketing program reflect our planned reduction in
sales efforts in the U.S. insulin market. This reduction was initiated in late
1997 and is consistent with our long term strategy of selling our products
through pharmaceutical and medical products companies.
General and administrative expenses increased from approximately $1,983,000
in 1997 to approximately $2,427,000 in 1998, an increase of approximately
$444,000 or 22%. This increase was primarily driven by three factors. The first
is an increase of $173,000 related to on-going quality assurance efforts and
non-recurring expenses incurred in the ISO certification process completed in
June 1998. The second factor is an increase of $157,000 in depreciation and
patent amortization expense. This increase relates primarily to a patent
amortization charge in the fourth quarter following the suspension of
development activities relating to a novel injector energy source. Activities on
this project were temporarily suspended after improvements on coil spring
designs became available. Management believes the novel energy source has
certain features which may be valuable in future generation injection systems
and therefore will continue to monitor the recoverability of the remaining
patent asset on an ongoing basis. A third major factor contributing to the
increase in general and administrative expenses for the period is an expense of
$75,000 relating to our repurchase of certain distributor rights in the human
growth hormone market from one of our distributors. The repurchase of these
rights has allowed us to sign a new agreement that is expected to generate fee
income and has begun to result in product sales.
Interest and other income decreased from approximately $505,000 in 1997 to
approximately $292,000 in 1998, a decrease of approximately $213,000. This
decrease is attributable to reduced interest earnings on lower average cash
reserves during 1998.
Liquidity and Capital Resources
Our cash decreased from approximately $2,852,000 on December 31, 1998 to
approximately $85,000 at December 31, 1999. The decrease is primarily due to a
net loss of approximately $3,703,000 and fixed asset purchases of approximately
$303,000 offset in part by a sale of preferred stock to Bio-Technology General
Corporation, non-cash depreciation and amortization expenses, and by accelerated
collections on accounts receivable balances at the end of 1999.
During the year ended December 31, 1999, cash used to fund operating
activities was approximately $2,633,000. The major components of this amount
included a net loss of approximately $3,703,000 and a decrease in deferred
revenue of approximately $216,000, offset by depreciation and amortization
totaling approximately $461,000, loss on disposal of assets of approximately
$174,000, decrease in accounts receivable, inventories and prepaid expense of
approximately $108,000, $163,000, and $29,000, respectively, along with
increases in accounts payable and accrued liabilities of $87,000 and $234,000,
respectively. Net cash used in investing activities totaled approximately
$378,000 principally due to additions to fixed assets of approximately $303,000,
and an additional investment in patent rights totaling approximately $75,000.
Net cash provided by financing activities totaled approximately $244,000,
resulting primarily from the issuance of convertible preferred stock for
$250,000.
Our financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and the satisfaction of liabilities and
other commitments in the normal course of business. Our Auditors Report has a
going concern qualification raising doubt about our ability to continue as a
viable company. We incurred net losses of approximately $2,972,000, $5,769,000
and $3,703,000 in 1997, 1998 and 1999, respectively. In addition, we incurred
net losses and have had negative cash flows from operating activities since
inception.
We expect to report a net loss for the year ending December 31, 2000 as we
continue to incur marketing and development costs related to bringing future
generations of products to market. Our long term capital requirements will
depend on numerous factors, including the status of collaborative arrangements,
the progress of research and development programs and the receipt of revenues
from sales of products.
To continue our existence, we will be required to raise additional working
capital or merge with another entity or both. We currently anticipate the
business combination transaction with Permatec Holding AG, discussed in Notes 2
and 13(b), will be consummated. The business combination is contingent on the
parties raising $10 million to fund
16
<PAGE>
both operations after closing of the transaction. If the Permatec business
combination does not occur, a note payable, incurred in conjunction with the
anticipated transaction, will be payable in full December 31, 2000, and we will
need to seek other sources of capital or pursue other business combinations. We
can provide no assurance that we will ever become profitable or that we will be
able to raise additional capital, on terms acceptable to us, or at all.
Our financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary if we are unable to
continue as a going concern
Impact of the Year 2000
Based on our assessment of operations through March 15, 2000, we have not
experienced any significant Year 2000 issues. We will continue to monitor areas
of concern throughout the Year 2000 transition period as additional information
becomes available. There can be no assurance that we will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in our internal operating systems,
which are composed primarily of third party software and hardware technology, or
by the inability of our vendors or customers to correct their Year 2000 issues.
The majority of our current standard product lines and manufacturing equipment
are not date sensitive and therefore are not directly affected by the Year 2000
issues.
Stock Option Repricing
On July 21, 1998, our Board of Directors approved the repricing of all
outstanding options held by employees, other than our Chief Executive Officer,
which had an exercise price greater than $7.20 per share. This repricing action
reduced the exercise price to $7.20 per share for stock option agreements
representing approximately 100,000 shares which had exercise prices ranging from
$7.80 to $25.00. Following the repricing, all other terms and conditions of
these option agreements were unchanged, including the vesting schedules.
On December 8, 1998, our Board of Directors approved the repricing of one
stock option agreement held by our Chief Executive Officer, which had an
exercise price of $26.90 per share. This option agreement totals 80,000 shares
and its exercise price was reduced to $7.20 per share. Following the repricing,
all other terms and conditions of this option agreement were unchanged,
including its vesting schedule.
On May 20, 1999, our Board of Directors approved the repricing of all
outstanding Non-Qualified Stock Options held by our directors which had an
exercise price greater than $3.50 per share. This repricing action reduced the
exercise price to $3.50 per share for Non-Qualified Stock Option Agreements
representing approximately 24,115 shares which had exercise prices ranging from
$9.05 to $25.00 per share. Following the repricing, all other terms and
conditions of these option agreements were unchanged, including the vesting
schedules.
On December 21, 1999, our Board of Directors approved the repricing of all
outstanding Qualified and Non-Qualified Stock Options, as of January 3, 2000,
held by our employees and directors, which had an exercise price greater than
$1.5625 per share. This repricing action reduced the exercise price to $1.5625
per share for all such Stock Option Agreements, representing approximately
252,517 shares which had exercise prices ranging from $1.75 to $25.00 per share.
Following the repricing, all other terms and conditions of these option
agreements were unchanged, including the vesting schedules.
Recent Developments
In January 2000, we signed a non-binding letter of intent with Permatec
Holding AG, a privately-held drug delivery company located in Basel,
Switzerland, to combine operations. Under the terms of the letter of intent, the
parties are currently negotiating the purchase of certain Permatec subsidiaries
by us in exchange for up to approximately 60% of our Common Stock. Permatec is
owned by Jacques Gonella, an entrepreneur and founder of Jago Pharma, now part
of SkyePharma plc. Permatec develops and licenses certain pharmaceutical
formulation technologies, including transdermal patches and topical gels. In
January and March 2000, Permatec invested a total of $500,000 in a Medi-Ject
convertible note, which will convert to common stock at the completion of the
business combination. If the Permatec transaction does not close, the note will
be payable in full on December 31, 2000.
17
<PAGE>
In February 2000, we signed an agreement with Chronimed for distribution of
our needle-free injection devices and supplies to the U.S. diabetes market.
Chronimed is a publicly-held, diversified healthcare company that develops,
markets and distributes pharmaceuticals, medical products and other specialized
services for people with long-term conditions such as diabetes, HIV/AIDS, organ
transplants and select diseases treated with self-injectable drugs. The
distribution agreement is with Home Service Medical & Pharmacy (HSM), the direct
marketing division of Chronimed, which sells medical supplies and prescription
drugs to the consumer through mail order catalogs.
New Accounting Pronouncements
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," effective for the year ending December 31, 2001, will require
derivatives to be recorded on the balance sheet as assets or liabilities,
measured at fair value. At the present time, we have not yet made a
determination of the impact the adoption will have on our consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
We will be required to adopt the new standard beginning with the second quarter
of fiscal 2000. The impact of adoption on our financial statements is not yet
quantifiable.
Item 7(a). MARKET RISK ASSESSMENT
Under Items 305(b) and 9A of Regulation S-K, we believe that we have no
material exposure to market risks. All foreign sales are denominated and
transacted in U.S. dollars and our outstanding shares of convertible preferred
stock have either a fixed coupon rate or are non-interest bearing.
18
<PAGE>
Item 8. FINANCIAL STATEMENTS.
MEDI-JECT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.....................................................................................20
Balance Sheets as of December 31, 1998 and 1999..................................................................21
Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999....................................22
Statements of Shareholders' Equity for the Years Ended December 31, 1997,
1998 and 1999..................................................................................................23
Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999....................................24
Notes to Financial Statements....................................................................................25
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Medi-Ject Corporation:
We have audited the accompanying balance sheets of Medi-Ject Corporation
(the Company) as of December 31, 1998 and 1999, and the related statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medi-Ject Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 2 and 13(b) to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Notes 2 and 13(b). The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
KPMG LLP
Minneapolis, Minnesota
February 18 , 2000
20
<PAGE>
MEDI-JECT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................................................... $ 2,852,285 $ 85,136
Accounts receivable, less allowances for doubtful accounts of
$25,000 and $25,000, respectively .................................... 275,694 167,301
Inventories ............................................................ 592,185 429,472
Prepaid expenses and other assets ...................................... 52,006 23,263
------------ ------------
3,772,170 705,172
------------ ------------
Equipment, furniture and fixtures, net .......................................... 1,278,456 1,002,554
------------ ------------
Patent rights, net .............................................................. 283,805 302,410
------------ ------------
$ 5,334,431 $ 2,010,136
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 250,512 $ 337,927
Accrued expenses and other liabilities ................................. 236,191 551,104
Deferred revenue ....................................................... 216,000 --
Capital lease obligations - current maturities ......................... 1,721 --
Note payable obligations - current maturities .......................... -- 14,156
------------ ------------
704,424 903,187
------------ ------------
Note payable, less current maturities ........................................... -- 54,094
Shareholders' equity:
Preferred Stock: $0.01 par; authorized 1,000,000 shares:
Series A Convertible Preferred Stock: $0.01 par; authorized
10,000 shares; 1,000 issued and outstanding at
December 31, 1998 and 1999, aggregate liquidation
preference of $1 million ............................................. 10 10
Series B Convertible Preferred Stock: $0.01 par; authorized 250 shares;
250 issued and outstanding at December 31, 1999, aggregate liquidation
preference of $250,000 ............................................... -- 3
Common Stock: $0.01 par; authorized 3,400,000 shares;
1,424,752 and 1,424,729 issued and outstanding at
December 31, 1998 and 1999, respectively ............................. 14,247 14,247
Additional paid-in capital ................................................. 24,911,694 25,186,430
Accumulated deficit ........................................................ (20,295,944) (24,147,835)
------------ ------------
4,630,007 1,052,855
------------ ------------
Commitments (Notes 4, 5 and 6)
$ 5,334,431 $ 2,010,136
============ ============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales .................................... $ 1,686,588 $ 2,171,881 $ 2,100,735
Licensing & product development .......... 2,030,435 527,364 1,381,127
----------- ----------- -----------
3,717,023 2,699,245 3,481,862
----------- ----------- -----------
Operating Expenses:
Cost of sales ............................ 1,221,051 1,853,715 1,785,464
Research and development ................. 2,413,366 3,516,856 2,417,779
Sales and marketing ...................... 1,539,504 947,866 1,058,364
General and administrative ............... 1,983,024 2,426,639 1,831,229
----------- ----------- -----------
7,156,945 8,745,076 7,092,836
----------- ----------- -----------
Net operating loss ............................. (3,439,922) (6,045,831) (3,610,974)
----------- ----------- -----------
Other income (expense):
Interest and other income ................ 505,295 291,521 66,018
Interest and other expense ............... (37,140) (15,154) (158,483)
----------- ----------- -----------
468,155 276,367 (92,465)
----------- ----------- -----------
Net loss ....................................... (2,971,767) (5,769,464) (3,703,439)
Preferred stock dividends ...................... -- (14,246) (148,452)
----------- ----------- -----------
Net loss applicable to common shares ........... $(2,971,767) $(5,783,710) $(3,851,891)
=========== =========== ===========
Basic and diluted net loss per common share .... $ (2.12) $ (4.07) $ (2.70)
=========== =========== ===========
Basic and diluted weighted average common shares
outstanding .............................. 1,402,140 1,421,066 1,424,731
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Preferred Stock
-----------------------------------------------------
Series A Series B Common stock
------------------------ -------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ............... -- $ -- -- $ -- 1,385,127 $ 13,851
Exercise of stock options and warrants -- -- -- -- 29,191 292
Compensation expense, stock options ... -- -- -- -- -- --
Net loss .............................. -- -- -- -- -- --
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 ............... -- -- -- -- 1,414,318 14,143
Issuance of Series A preferred stock .. 1,000 10 -- -- -- --
Dividends payable on preferred stock .. -- -- -- -- -- --
Financing cost ........................ -- -- -- -- -- --
Exercise of stock options and warrants -- -- -- -- 10,434 104
Compensation expense, stock options ... -- -- -- -- -- --
Net loss .............................. -- -- -- -- -- --
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 ............... 1,000 10 -- -- 1,424,752 14,247
Issuance of Series B preferred stock .. -- -- 250 3 -- --
Dividends payable on preferred stock .. -- -- -- -- -- --
Financing cost ........................ -- -- -- -- -- --
Redemption of fractional shares ....... -- -- -- -- (23) --
Compensation expense, stock options ... -- -- -- -- -- --
Net loss .............................. -- -- -- -- -- --
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 ............... 1,000 $ 10 250 $ 3 1,424,729 $ 14,247
========= ============ ============ ============ ============ ============
<CAPTION>
Additional
paid-in Accumulated
capital deficit Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1996 ............... $ 23,646,292 $(11,540,467) $ 12,119,676
Exercise of stock options and warrants 183,934 -- 184,226
Compensation expense, stock options ... 4,995 -- 4,995
Net loss .............................. -- (2,971,767) (2,971,767)
------------ ------------ ------------
Balance, December 31, 1997 ............... 23,835,221 (14,512,234) 9,337,130
Issuance of Series A preferred stock .. 999,990 -- 1,000,000
Dividends payable on preferred stock .. (14,246) (14,246)
Financing cost ........................ (18,937) -- (18,937)
Exercise of stock options and warrants 64,476 -- 64,580
Compensation expense, stock options ... 30,944 -- 30,944
Net loss .............................. -- (5,769,464) (5,769,464)
------------ ------------ ------------
Balance, December 31, 1998 ............... 24,911,694 (20,295,944) 4,630,007
Issuance of Series B preferred stock .. 249,997 -- 250,000
Dividends payable on preferred stock .. (148,452) (148,452)
Financing cost ........................ (4,934) -- (4,934)
Redemption of fractional shares ....... (66) -- (66)
Compensation expense, stock options ... 29,739 -- 29,739
Net loss .............................. -- (3,703,439) (3,703,439)
------------ ------------ ------------
Balance, December 31, 1999 ............... $ 25,186,430 $(24,147,835) $ 1,052,855
============ ============ ============
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $(2,971,767) $(5,769,464) $(3,703,439)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............................ 326,065 596,727 461,343
Loss on disposal and abandonment of assets ............... 17,079 9,445 173,682
Interest on marketable debt securities ................... (246,813) (176,086) --
Compensation expense ..................................... 4,995 30,944 29,739
Changes in operating assets and liabilities:
Accounts receivable .................................... (223,193) 485,254 108,393
Inventories ............................................ (45,742) (195,113) 162,713
Prepaid expenses and other assets ...................... 15,094 19,489 28,743
Accounts payable ....................................... (31,698) (71,246) 87,415
Accrued liabilities .................................... 48,330 (157,831) 233,921
Deferred revenue ....................................... (14,019) 216,000 (216,000)
----------- ----------- -----------
Net cash used in operating activities ............................. (3,121,669) (5,011,881) (2,633,490)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities ....................... (6,975,059) (2,729,831) --
Proceeds from sales of marketable securities ............. 5,148,666 6,443,400 --
Purchases of equipment, furniture and fixtures ........... (859,373) (516,186) (302,743)
Proceeds from sale of equipment, furniture & fixtures .... -- 2,200 --
Payments for patent rights ............................... (77,790) (119,828) (74,985)
----------- ----------- -----------
Net cash provided by (used in) investing activities ............... (2,763,556) 3,079,755 (377,728)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable .......................... -- -- 72,425
Principal payments on capital lease obligations .......... (7,083) (1,721)
Principal payments on note payable obligations ........... -- -- (4,175)
Proceeds from issuance of common stock, net .............. 184,226 64,580 --
Redemption of fractional shares .......................... -- -- (66)
Proceeds from issuance of convertible preferred stock, net -- 981,063 245,066
Payment of dividends and related tax liability ........... -- -- (67,460)
Principal payments on notes payable ...................... (96,097) -- --
----------- ----------- -----------
Net cash provided by financing activities ......................... 55,836 1,038,560 244,069
----------- ----------- -----------
Net decrease in cash and cash equivalents ......................... (5,829,389) (893,566) (2,767,149)
Cash and cash equivalents:
Beginning of year ........................................ 9,575,240 3,745,851 2,852,285
----------- ----------- -----------
End of year .............................................. $ 3,745,851 $ 2,852,285 $ 85,136
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business and Summary of Significant Accounting Policies
Business
We are primarily a manufacturer and distributor of needle-free and
small-needle injection devices and disposables for the injection of insulin and
human growth hormone. Products are sold throughout the United States, Europe,
the Middle East, and Asia.
Net Loss Per Share
Basic EPS is computed by dividing net income or loss available to Common
Shareholders by the weighted-average number of Common Shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into Common Stock. For the years ended December 31,
1997, 1998 and 1999, the effects of potential Common Shares were excluded from
the calculation of diluted EPS because their effect was antidilutive.
Cash Equivalents
We consider highly liquid debt instruments with original maturities of 90
days or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on a basis that approximates the first-in, first-out basis.
Equipment, Furniture, and Fixtures
Equipment, furniture, and fixtures are stated at cost and are depreciated
using the straight-line method over their estimated useful lives ranging from
three to seven years.
Sales Recognition
Sales and related costs are recognized upon shipment of product to
customers. Sales are recorded net of provisions for returns.
Licensing and Product Development Revenue Recognition
Licensing and product development revenue is recognized when underlying
performance criteria for payment have been met and we have an unconditional
right to such payment. Depending on a license or product development agreement's
terms, recognition criteria may be satisfied upon achievement of milestones,
passage of time, or product sales by the licensee. Payments we receive in excess
of amounts earned are classified as deferred revenue.
Stock-Based Compensation
Compensation expense for stock incentives granted to employees and
directors is recognized in accordance with Accounting Principles Board, Opinion
25 ("APB 25"), "Accounting for Stock Issued to Employees." Pro forma effects on
net loss and loss per share are provided as if the fair value based method
defined in Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," had been applied.
25
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Product Warranty
We recognize the estimated cost of warranty obligations to our customers at
the time the products are shipped.
Research and Development
All of our sponsored research and development expenses related to both
present and future products are expensed as incurred.
Patent Rights
We capitalize the cost of obtaining patent rights. These capitalized costs
are amortized on a straight-line basis over seven years beginning on the earlier
of the date the patent is issued or the first commercial sale of product
utilizing such patent rights. Recoverability of such patent assets is evaluated
on a quarterly basis.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
Fair Value of Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
Advertising Expense
Advertising expense (including production and communication costs) for
1997, 1998 and 1999 was $333,515, $201,521 and $342,627, respectively.
Production costs related to advertising are expensed as incurred.
26
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
New Accounting Pronouncements
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," effective for the year ending December 31, 2001, will require
derivatives to be recorded on the balance sheet as assets or liabilities,
measured at fair value. At the present time, we have not yet made a
determination of the impact the adoption will have on our consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
We will be required to adopt the new standard beginning with the second quarter
of fiscal 2000. The impact of adoption on our financial statements is not yet
quantifiable.
2. Going Concern
Our accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and other commitments in the normal course of business. We incurred
net losses of approximately $2,972,000, $5,769,000 and $3,703,000 in 1997, 1998
and 1999, respectively. In addition, we incurred net losses and have had
negative cash flows from operating activities since inception.
We expect to report a net loss for the year ending December 31, 2000, as we
continue to incur marketing and development costs related to bringing future
generations of products to market. Our long term capital requirements will
depend on numerous factors, including the status of collaborative arrangements,
the progress of research and development programs and the receipt of revenues
from the sales of products.
To continue our existence, we will be required to raise additional working
capital or merge with another entity. We currently anticipate the business
combination transaction with Permatec Holdings, AG, discussed in Note 13(b) will
be consummated. The business combination is contingent on the parties raising
$10 million to fund both operations after closing of the transaction. If the
business combination transaction does not occur, we will seek other sources of
capital, or pursue other business combinations. We can provide no assurance that
we will ever become profitable or that we will be able to raise additional
capital, on terms acceptable to us, or at all.
Our financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary if we are unable to
continue as a going concern.
27
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
3. Composition of Certain Financial Statement Captions
December 31,
--------------------------
1998 1999
----------- -----------
Inventories:
Raw material ........................... $ 132,884 $ 219,903
Work-in-process ........................ 95,157 60,998
Finished goods ......................... 364,144 148,571
----------- -----------
$ 592,185 $ 429,472
=========== ===========
Equipment, furniture and fixtures:
Furniture, fixtures and office equipment $ 933,296 $ 1,392,568
Production equipment ................... 1,518,675 1,014,310
Less accumulated depreciation .......... (1,173,515) (1,404,324)
----------- -----------
$ 1,278,456 $ 1,002,554
=========== ===========
Patent rights:
Patent rights .......................... $ 542,628 $ 617,612
Less accumulated amortization .......... (258,823) (315,202)
----------- -----------
$ 283,805 $ 302,410
=========== ===========
Accrued expenses and other liabilities:
Product warranty and returns ........... $ 56,000 $ 50,000
Payroll ................................ 34,715 46,326
Inventory purchases received ........... 29,877 107,131
Legal and patent fees .................. -- 32,146
Other .................................. 101,353 87,269
Dividend payable ....................... 14,246 95,238
Product development dispute settlement . -- 132,994
----------- -----------
$ 236,191 $ 551,104
=========== ===========
4. Leases
We have a non-cancelable operating lease for our office and manufacturing
facility that expires in April 2002. This lease requires us to pay all executory
costs such as maintenance and property taxes.
Lease expense incurred for the years ended December 31, 1997, 1998 and 1999
was $161,339, $214,093 and $243,674, respectively.
Future minimum lease payments are as follows as of December 31, 1999:
2000............................................ $ 258,543
2001............................................ 278,833
2002............................................ 98,508
2003............................................ --
-----------
$ 635,884
===========
28
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
5. Note Payable
We are obligated under a non-cancelable 48-month lease for information
system software classified as a note payable. The lease calls for monthly
payments of $2,275 with an expiration date of August 2003. Upon payment of a
$1.00 buy-out fee, we retain ownership of the software.
The note payable consists of the following:
Secured note payable, imputed interest at 18.33%.......... $ 68,250
Current maturities ....................................... (14,156)
-----------
Note payable, less current maturities..................... $ 54,094
===========
Future minimum note payments are as follows as of December 31, 1999:
2000 $ 27,302
2001 27,302
2002 27,302
2003 18,201
-----------
$ 100,107
===========
6. Agreement Restructuring
(a) Becton Dickinson Agreement
On February 8, 1999, we executed an agreement with Becton Dickinson to
restructure the original agreement entered into in January 1996. The original
agreement involved a strategic alliance with Becton Dickinson that included an
exclusive Development and Licensing Agreement, which provided Becton with
marketing and manufacturing rights to our products and technology. The revised
agreement is based upon the realization of both parties that the MJ-7 product
and its disposable components would not fulfill the marketing or manufacturing
requirements of Becton Dickinson. Under the terms of the new agreement, we are
free to market the MJ-7 insulin injector and manufacture disposables in exchange
for a royalty on sales. Becton Dickinson retains an option that allows it, for a
limited time, to negotiate for marketing rights for a future generation MJ-8
injector and a similar option to negotiate for the right to manufacture
disposables under certain conditions.
(b) Schering-Plough Contract
In March 1999, we signed an agreement with Schering-Plough Corporation to
settle mutual obligations under a contract dated January 20, 1998. The original
agreement called for an exclusive sales arrangement where we would sell our
products to Schering-Plough for distribution with its drug Intron-A.
Schering-Plough agreed to pay us an undisclosed sum in exchange for cancellation
of a product purchase order and as reimbursement for certain non-cancelable
manufacturing expenses.
29
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
7. Income Taxes
We incurred losses for both book and tax purposes in each of the years in
the three year period ended December 31, 1999, and, accordingly, no income taxes
were provided. Effective tax rates differ from statutory federal income tax
rates in the years ended December 31, 1997, 1998 and 1999 as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate ................... (34.0)% (34.0)% (34.0)%
Valuation allowance increase......................... 35.7 39.0 43.0
State income taxes, net of federal benefit........... (2.0) (3.6) (5.0)
Research and experimentation credit.................. -- (1.6) (4.6)
Other................................................ 0.3 0.2 0.6
------- ------- -------
0.0% 0.0% 0.0%
======= ======= =======
</TABLE>
Deferred tax assets as of December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------ -------------
<S> <C> <C>
Inventory reserve............................... $ 18,000 $ 31,000
Net operating loss carryforward................. 7,383,000 8,717,000
Research credit carryforward.................... 372,000 544,000
Other........................................... 109,000 181,000
------------ -------------
7,882,000 9,473,000
Less valuation allowance............................. (7,882,000) (9,473,000)
------------- --------------
$ 0 $ 0
============ =============
</TABLE>
At December 31, 1999, we had net operating loss carryforwards ("NOL") of
approximately $23,000,000 for federal income tax purposes which if unused will
begin to expire in 2009. Additionally, the Company had research credit
carryforwards of approximately $544,000.
The net operating loss is subject to annual limitation as defined by
Section 382 of the Internal Revenue Code. The annual limitation for utilization
of the net operating loss carryforwards is approximately $750,000. Subsequent
equity changes could further limit the net operating losses available in
particular, the proposed transaction described in Notes 2 and 13(b) will further
limit net operating losses availability.
8. Shareholders' Equity
Authorized Shares
At December 31, 1999, the total number of shares authorized for all classes
of stock was 4,400,000 shares: 3,400,000 common shares and 1,000,000 preferred
shares with 10,000 preferred shares designated as Series A and 250 preferred
shares designated as Series B. The authorized common share figure has been
adjusted for a one for five reverse stock split effective on January 28, 1999.
The reverse stock split had no effect on the authorized preferred shares.
Reverse Stock Split
On January 28, 1999, we declared a one-for-five reverse stock split of our
outstanding Common Stock, applicable to shareholders of record at close of
trading on January 28, 1999. After the reverse split, we had
30
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1,424,752 shares of common stock outstanding. All common share and per share
amounts in this report have been retroactively restated to give effect to this
reverse stock split.
Series A Convertible Preferred Stock
On November 10, 1998, we sold 1,000 shares of Series A Convertible
Preferred Stock ("Series A") and warrants to purchase 56,000 shares of common
stock to Elan International Services, Ltd., for total consideration of
$1,000,000. The Series A carries a 10% dividend which is payable semi-annually.
In addition to the stated 10% dividend, we are also obligated to pay foreign tax
withholding on the dividend payment, which equates to an effective dividend rate
of 14.2%. Such foreign tax withholding payments have been reflected as dividends
since they are non-recoverable. The Series A is redeemable at our option at any
time and is convertible into common stock for sixty days following the 10th
anniversary of the date of issuance at the lower of $7.50 per share or 95% of
the market price of the Common Stock. Under certain limited circumstances where
certain conditions fail to be met, the Series A may be converted at our election
within 30 days of the second anniversary of the date of issuance at the market
price of the Common Stock at such time. The warrants to purchase Common Stock
may be exercised at any time prior to November 10, 2005, at a price of $15.00
per share. The proceeds from the sale of these securities were used primarily to
fund the purchase of certain technology from Elan Corporation.
Series B Convertible Preferred Stock
On December 22, 1999, we sold 250 shares of Series B Convertible Preferred
Stock ("Series B") to Bio-Technology General Corp. for total consideration of
$250,000. The Series B does not carry a stated dividend rate. The Series B will
convert to Common Stock on the latter of (i) the date of occurrence of
Permissible Conversion Events or (ii) June 30, 2001. The Permissible Conversion
Events are a combination of increasing our authorized Common Stock from
3,400,000 shares to at least 10,000,000 shares and receiving necessary approvals
under the Nasdaq listing requirements. The conversion price will be the lower of
(i) the average of the closing prices per share of our Common Stock for the
twenty (20) consecutive trading days immediately preceding the conversion date,
or (ii) $2.50 per share. The Series B has certain preference rights over holders
of Common Stock and is subordinated to Series A. The proceeds from the sale of
these securities were used primarily for working capital.
Stock Option Repricing
On July 21, 1998, our Board of Directors approved the repricing of all
outstanding options held by employees, other than our Chief Executive Officer
and directors which had an exercise price greater than $7.20 per share. This
repricing action reduced the exercise price to $7.20 per share for stock option
agreements representing approximately 100,000 shares which had exercise prices
ranging from $7.80 to $25.00. Following the repricing, all other terms and
conditions of these option agreements were unchanged, including the vesting
schedules.
On December 8, 1998, our Board of Directors approved the repricing of one
stock option agreement held by our Chief Executive Officer, which had an
exercise price of $26.90 per share. This option agreement totals 80,000 shares
and its exercise price was reduced to $7.20 per share. Following the repricing,
all other terms and conditions of this option agreement were unchanged,
including its vesting schedule.
On May 20, 1999, our Board of Directors approved the repricing of all
outstanding Non-Qualified Stock Options held by our directors which had an
exercise price greater than $3.50 per share. This repricing action reduced the
exercise price to $3.50 per share for Non-Qualified Stock Option Agreements
representing approximately 24,115 shares which had exercise prices ranging from
$9.05 to $25.00 per share. Following the repricing, all other terms and
conditions of these option agreements were unchanged, including the vesting
schedules.
31
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
On December 21, 1999, our Board of Directors approved the repricing of all
outstanding Qualified and Non-Qualified Stock Options, as of January 3, 2000,
held by our employees and directors, which had an exercise price greater than
$1.5625 per share. This repricing action reduced the exercise price to $1.5625
per share for all such Stock Option Agreements, representing approximately
252,517 shares which had exercise prices ranging from $1.75 to $25.00 per share.
Following the repricing, all other terms and conditions of these option
agreements were unchanged, including the vesting schedules.
No compensation expense has been recorded for these repricings since the
adjusted exercise price equaled or exceeded the market price of the underlying
stock at the date of repricing.
Stock Options and Warrants
Our stock option plans allow for the grants of options to officers,
directors, consultants and employees to purchase up to 369,010 shares of Common
Stock at exercise prices not less than 100% of fair market value on the dates of
grant. The term of the options may not exceed ten years and vest in varying
periods.
Stock option and warrant activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number average
of Shares prices
----------- -----------
<S> <C> <C>
Outstanding at December 31, 1996....................................... 706,677 25.15
Granted............................................................ 121,700 22.25
Exercised.......................................................... (29,190) 6.50
Canceled........................................................... (19,141) 22.35
----------- -----------
Outstanding at December 31, 1997....................................... 780,046 25.40
Granted............................................................ 301,190 8.40
Exercised.......................................................... (10,434) 6.23
Canceled........................................................... (210,684) 19.47
----------- ------
Outstanding at December 31, 1998....................................... 860,118 $ 21.11
Granted ........................................................... 74,215 $ 2.73
Exercised ......................................................... -- --
Canceled .......................................................... (85,483) $ 9.45
----------- -----------
Outstanding at December 31, 1999....................................... 848,850 $ 20.68
=========== ===========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options and warrants by price range:
<TABLE>
<CAPTION>
- --------------------- --------------------------------------------------------- --------------------------------------
Outstanding Exercisable
- --------------------- --------------------------------------------------------- --------------------------------------
Weighted Average
Number of Shares Remaining Life Weighted Average Weighted Average
Price Range Outstanding In Years Exercise Price Number Exercisable Exercise Price
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Pursuant to Option
Plans:
$ 1.75 to 3.50 88,313 8.5 $2.86 31,413 $ 3.04
6.55 to 9.40 152,714 6.5 7.20 85,454 7.11
14.70 to 25.00 40,243 4.9 21.71 29,443 20.90
------- -------
281,270 6.9 7.91 146,310 9.01
======= =======
Warrants:
$2.40 to 23.00 142,772 5.9 $18.39 142,772 $18.39
29.55 to 33.00 424,807 5.6 29.91 424,807 29.91
------- -------
567,579 5.7 27.01 567,579 27.01
======= =======
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>
32
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
We apply APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for our plans. Accordingly, no compensation
expense has been recognized for our stock-based compensation plans. Had we
determined compensation cost based on the fair value at the grant date for stock
options under SFAS No. 123, Accounting and Disclosure of Stock-Based
Compensation, our net loss and loss per share would have increased to the
pro-forma amounts shown below:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net loss applicable to common shareholders:
As reported..................................... $(2,971,767) $(5,783,710) $(3,851,891)
Pro forma....................................... $(3,672,000) $(6,667,938) $(4,591,675)
Net loss per common share:
As reported..................................... $(2.12) $(4.07) $(2.70)
Pro forma....................................... $(2.62) $(4.69) $(3.22)
</TABLE>
The per share weighted-average fair value of stock based awards granted
during 1997, 1998 and 1999 is estimated as $17.15, $9.19 and $1.82 respectively,
on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.............................. 6.0% 5.5% 5.5%
Annualized volatility................................ 99% 100% 100%
Weighted average expected life, in years............. 5.0 5.0 5.0
Expected dividend yield.............................. 0.0% 0.0% 0.0%
</TABLE>
9. Employee Savings Plan
We have an employee savings plan that covers all employees who have met
minimum age and service requirements. Under the plan, eligible employees may
contribute up to 20% of their compensation into the plan. At the discretion of
the Board of Directors, we may contribute elective amounts to the plan,
allocated in proportion to employee contributions to the plan, employee's
salary, or both. No elective contributions have been made for the years ended
December 31, 1997, 1998 and 1999.
10. Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the years ended December 31, 1997, 1998 and
1999 was $9,339, $1,398 and $4,427, respectively.
Cash paid for taxes during the years ended December 31, 1997, 1998 and 1999
was $300, $2,758 and $700 respectively.
11. Additional Sales Information
We are primarily a manufacturer and distributor of needle-free and
small-needle injection devices and disposables for the injection of insulin and
human growth hormone. For reporting purposes, these operations are considered to
be one segment.
International sales for the years ended 1997, 1998, and 1999 were
approximately 52%, 74%, and 68%, respectively of total sales. International
sales by country are summarized as follows:
33
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
<TABLE>
<CAPTION>
International Sales Revenue: 1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Europe (primarily Germany)........................... $ 759,168 $ 1,173,364 $ 1,041,661
Other (primarily Asia)............................... 113,044 440,923 390,152
------------- ------------- ------------
Total............................................ $ 872,212 $ 1,614,287 $ 1,431,813
============= ============= ============
</TABLE>
The following summarizes significant customers comprising 10% or more of our
customer sales and outstanding accounts receivable as of and for the years
ended:
<TABLE>
<CAPTION>
Significant Customer Revenue: 1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Ferring ............................................. $ 632,004 $ 1,095,779 $ 945,173
JCR ................................................. 43,902 365,388 269,393
</TABLE>
<TABLE>
<CAPTION>
Significant Customer Receivable Balances: 1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Ferring ............................................. $ 230,379 $ 71,911 $ 69,127
JCR ................................................. 0 20,531 4,428
</TABLE>
12. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1998:
Total revenues $ 912,973 $ 755,517 $ 687,548 $ 343,207
Net loss (845,556) (1,074,888) (1,262,042) (2,601,224)
Net loss applicable to common shares (.60) (.76) (.89) (1.83)
Weighted average shares (1) 1,414,318 1,420,287 1,424,752 1,424,752
1999:
Total revenues $ 1,591,988 $ 576,895 $ 509,058 $ 803,921
Net loss (290,121) (1,023,007) (1,192,048) (1,346,715)
Net loss applicable to common shares (.20) (.72) (.84) (.95)
Weighted average shares (1) 1,424,736 1,424,729 1,424,729 1,424,729
</TABLE>
(1) Loss per Common Share is computed based upon the weighted average number of
shares outstanding during each period. Basic and diluted loss per share
amounts are identical as the effect of potential Common Shares is
anti-dilutive.
13. Subsequent Events
(a) Stock Option Repricing
On December 21, 1999, our Board of Directors approved the repricing of all
outstanding Qualified and Non-Qualified Stock Options, as of January 3, 2000,
held by our employees and directors, which had an exercise price greater than
$1.5625 per share. This repricing action reduced the exercise price to $1.5625
per share for all such Stock Option Agreements representing approximately
252,517 shares which had exercise prices ranging from $1.75 to $25.00 per share.
Following the repricing, all other terms and conditions of these option
agreements were unchanged, including the vesting schedules.
(b) Business Combination Agreement
In January 2000, we signed a non-binding letter of intent with Permatec
Holding AG, a privately-held drug delivery company located in Basel,
Switzerland, to combine operations. Under the terms of the letter of intent, the
34
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
parties are currently negotiating the purchase of certain Permatec subsidiaries
by us in exchange for up to approximately 60% of our Common Stock. Permatec is
owned by Jacques Gonella, an entrepreneur and founder of Jago Pharma, now part
of SkyePharma plc. Permatec develops and licenses certain pharmaceutical
formulation technologies, including transdermal patches and topical gels. In
January and March 2000, Permatec invested a total of $500,000 in a Medi-Ject
convertible note, which will convert to common stock at the completion of the
business combination. If the Permatec transaction does not close, the note will
be payable in full on December 31, 2000.
(c) Chronimed Distribution Agreement
In February 2000, we signed an agreement with Chronimed for distribution of
our needle-free injection devices and supplies to the U.S. diabetes market.
Chronimed is a publicly-held, diversified healthcare company that develops,
markets and distributes pharmaceuticals, medical products and other specialized
services for people with long-term conditions such as diabetes, HIV/AIDS, organ
transplants and select diseases treated with self-injectable drugs. The
distribution agreement is with Home Service Medical & Pharmacy (HSM), the direct
marketing division of Chronimed, which sells medical supplies and prescription
drugs to the consumer through mail order catalogs.
In this new distribution arrangement, Home Service Medical will take over
all of our direct-to-patient sales of devices and disposable supplies for the
U.S. diabetes market. We will retain retail pharmacy-based distribution as well
as our existing online selling alliance with drugstore.com.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
35
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement
for our 2000 Annual Meeting of Shareholders is incorporated by reference.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, information as to executive officers is set forth in
Part 1 of the Form 10-K under separate caption.
Item 11. EXECUTIVE COMPENSATION
The information included under the heading "Executive Compensation" in our
Proxy Statement for our 2000 Annual Meeting of Shareholders is incorporated by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for our 2000
Annual Meeting of Shareholders is incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the heading "Certain Relationships and
Related Transactions" in the Company's Proxy Statement for our 2000 Annual
Meeting of Shareholders is incorporated by reference.
36
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements - see Part II
(2) Financial Statement Schedules -All schedules have been omitted because
they are not applicable, are immaterial or are not required because
the information is included in the financial statements or the notes
thereto.
(3) Item 601 Exhibits- see list of Exhibits below
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the fourth quarter of 1999.
(c) Exhibits
3.1 Second Amended and Restated Articles of Incorporation.(a)
3.2 Second Amended and Restated Bylaws.(a)
3.3 Certificate of Designations for Series A Convertible Preferred Stock
3.4 Certificate of Designations for Series B Convertible Preferred Stock
4.1 Form of Certificate for Common Stock.(a)
4.2 Stock Warrant, dated January 25, 1996, issued to Becton Dickinson and
Company.(a)
4.3 Stock Option, dated January 25, 1996, issued to Becton Dickinson and
Company.(a)
4.4 Warrant, dated March 24, 1995, issued to Robert Fullerton.(a)
4.5 Warrant, dated March 24, 1995, issued to Michael Trautner.(a)
4.6 Preferred Stock, Option and Warrant Purchase Agreement, dated January
25, 1996, with Becton Dickinson and Company (filed herewith as Exhibit
10.7).(a)
4.7 Warrant issued to Elan International Services, Ltd. on November 10,
1998
4.8 Warrant issued to Grayson & Associates, Inc. on September 23, 1999
10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995, including
amendments thereto.(a)
10.3 Security Agreement, dated September 30, 1994, with Kelsey Lake Limited
Partnership and Kerry Lake Company, a Limited Partnership.(a)
37
<PAGE>
10.4 Exclusive License & Supply Agreement with Bio-Technology General
Corporation, dated December 22, 1999
10.5 Preferred Stock Purchase Agreement with Bio-Technology General
Corporation, dated December 22, 1999
10.6 Loan Agreement, dated December 22, 1995, with Ethical Holdings plc,
including the related Promissory Note, dated December 22, 1995, issued
to Ethical Holdings plc.(a)
10.7 Preferred Stock, Option and Warrant Purchase Agreement, dated January
25, 1996, with Becton Dickinson and Company.(a)
10.8* Employment Agreement, dated January 1, 1997, with Franklin Pass,
MD.(c)
10.8.1 Employment Agreement, dated December 21, 1999, with Franklin Pass,
M.D.
10.9* Employment Agreement, dated December 21, 1999 with Lawrence
Christian
10.10* Reserved.
10.11* Employment Agreement, dated January 3, 1995, with Peter
Sadowski.(a)
10.11.1 Employment Agreement, dated December 21, 1999, with Peter Sadowski.
10.12* 1993 Stock Option Plan.(a)
10.13* Form of incentive stock option agreement for use with 1993 Stock
Option Plan.(a)
10.14* Form of non-qualified stock option agreement for use with 1993
Stock Option Plan.(a)
10.15* 1996 Stock Option Plan, with form of stock option agreement.(a)
10.20+ Development and License Agreement with Becton Dickinson and
Company, effective January 1, 1996 (terminated January 1, 1999). See
Exhibit 10.24 (a)
10.21 Office-Warehouse lease with Carlson Real Estate Company, dated
February 11, 1997. (b)
10.22* 1998 Stock Option Plan for Non-Employee Directors. (d)
10.23* Letter consulting agreement dated February 20, 1998 with Geoffrey
W. Guy. (d)
10.24# Agreement with Becton Dickinson dated January 1, 1999
10.25 Securities Purchase Agreement with Elan International Services, Ltd.
dated November 10, 1998
10.26# License & Development Agreement with Elan Corporation, plc, dated
November 10, 1998
23 Consent of KPMG LLP
27 Financial Data Schedule
38
<PAGE>
99 Cautionary Statement (b)
* Indicates management contract or compensatory plan or arrangement.
+ Pursuantto Rule 406 of the Securities Act of 1933, as amended,
confidential portions of Exhibit 10.20 were deleted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment, which was subsequently granted by
the Securities and Exchange Commission.
# Pursuantto Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibits 10.24 and 10.26 were
deleted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
(a) Incorporated by reference to our Registration Statement on Form S-1
(File No. 333-6661), filed with the Securities and Exchange Commission
on October 1, 1996.
(b) Incorporated by reference to our Form 10-K for the year ended December
31, 1996.
(c) Incorporated by reference to our Form 10-Q for the quarter ended March
31, 1997.
(d) Incorporated by reference to our Form 10-K for the year ended December
31, 1997.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on March 30, 2000.
MEDI-JECT CORPORATION
/s/Franklin Pass, M.D.
-----------------------------------
Franklin Pass, MD
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed by the following persons on behalf of
the registrant in the capacities indicated on March 30, 2000.
Signature Title
--------- -----
/s/Franklin Pass, M.D. President, Chief Executive Officer and Director
- ----------------------------- (principal executive officer)
Franklin Pass, M.D.
/s/Lawrence M. Christian Vice President of Finance & Administration,
- ----------------------------- Chief Financial Officer and Secretary
Lawrence M. Christian (principal financial and accounting officer)
/s/Kenneth Evenstad Director
- -----------------------------
Kenneth Evenstad
/s/Geoffrey Guy Director
- -----------------------------
Geoffrey Guy
/s/Fred Shapiro, M.D. Director
- -----------------------------
Fred Shapiro, M.D.
/s/Stanley Goldberg Director
- -----------------------------
Stanley Goldberg
/s/Karl Groth Director
- -----------------------------
Karl Groth
40
<PAGE>
EXHIBIT 4.8
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, OR (ii) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
MEDI-JECT CORPORATION
Warrant for the Purchase of Shares of Common Stock,
$.01 par value per Share
No.____ 10,000 Shares
THIS CERTIFIES that, for value received, GRAYSON & ASSOCIATES, INC. (the
"Holder"), is entitled to subscribe for and purchase from MEDI-JECT CORPORATION,
a Minnesota corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time after September 23, 1999, and before
5:00 P.M. on September 23, 2004, Minnesota time (the "Exercise Period"), 10,000
shares of the Company's Common Stock, $.01 par value ("Common Stock"), at a
price of $2.4004 per share (the "Exercise Price"). This Warrant is the warrant
or one of the warrants (collectively, including any warrants issued upon the
exercise or transfer of any such warrants in whole or in part, the "Warrants")
issued pursuant to the Agreement, dated September 23, 1999, between the Holder
and the Company. This Warrant may be transferred subject to the following
conditions: (i) during the first year after the date of this Warrant, it may not
be sold, transferred, assigned or hypothecated except to persons who are (x)
both officers and shareholders of Holder, or (y) both officers and employees of
Holder, and (ii) after such period, the Warrant shall be transferable without
restriction, subject to the opinion of counsel as provided in Paragraph 4 herein
that such transfer is not in violation of federal or state securities laws. The
term the "Holder" as used herein shall include any transferee to whom this
Warrant has been transferred in accordance with the above.The number of shares
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares")
and the Exercise Price may be adjusted from time to time as hereinafter set
forth.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the election at the end hereof duly executed) to the Company at
its office at 161 Cheshire Lane, Suite 100, Minneapolis, Minnesota 55441, or at
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised (the "Stock Purchase Price").
2. (a) In lieu of the payment of the Stock Purchase Price, the Holder shall
have the right (but not the obligation), to require the Company to convert this
Warrant, in whole or in part, into shares of Common Stock (the "Conversion
Right") as provided for in this Section 2. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any of the Stock Purchase Price) that number of shares of Common Stock (the
"Conversion Shares") equal to the quotient obtained by dividing (x) the value of
this Warrant (or portion thereof as to which the Conversion Right is being
exercised if the Conversion Right is being exercised in part) at the time the
Conversion Right is exercised (determined by subtracting the aggregate Stock
Purchase Price of the shares of Common Stock as to which the Conversion Right is
being exercised in effect immediately prior to the exercise of the Conversion
Right from the aggregate Current Market Price (as defined in Section 6(b)
hereof) of the shares of Common Stock as to which the Conversion Right is being
exercised immediately prior to the exercise of the Conversion Right) by (y) the
Current Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
<PAGE>
(b) The Conversion Rights provided under this Section 2 may be exercised in
whole or in part and at any time and from time to time while any Warrants remain
outstanding. In order to exercise the Conversion Right, the Holder shall
surrender to the Company, at its offices, this Warrant with the Notice of
Conversion at the end hereof duly executed. The presentation and surrender shall
be deemed a waiver of the Holder's obligation to pay all or any portion of the
aggregate purchase price payable for the shares of Common Stock as to which such
Conversion Right is being exercised. This Warrant (or so much thereof as shall
have been surrendered for conversion) shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
Warrant for conversion in accordance with the foregoing provisions.
3. Upon each exercise of the Holder's rights to purchase Warrant Shares or
Conversion Shares, the Holder shall be deemed to be the holder of record of the
Warrant Shares or Conversion Shares issuable upon such exercise or conversion,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Warrant Shares or Conversion Shares shall not
then have been actually delivered to the Holder. As soon as practicable after
each such exercise or conversion of this Warrant, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares or
Conversion Shares issuable upon such exercise or conversion, registered in the
name of the Holder or its designee. If this Warrant should be exercised or
converted in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
4. Any Warrants issued upon the transfer or exercise or conversion in part
of this Warrant shall be numbered and shall be registered in a Warrant Register
as they are issued. The Company shall be entitled to treat the registered holder
of any Warrant on the Warrant Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by the Holder's duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
authenticated evidence of the authority of such person or entity shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto. Notwithstanding the
foregoing, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder.
5. The Company shall seek at its next annual meeting of shareholders to
amend its Articles of Incorporation to increase its authorized common stock and
if the shareholders approve such amendment, it shall at all times thereafter
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of providing for the exercise of the rights to purchase
all Warrant Shares and/or Conversion Shares granted pursuant to the Warrants,
such number of shares of Common Stock as shall, from time to time, be sufficient
therefor. The Company covenants that all shares of Common Stock issuable upon
exercise of this Warrant, upon receipt by the Company of the full Exercise Price
therefor, and all shares of Common Stock issuable upon conversion of this
Warrant, shall be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders, optionholders,
warrantholders and any other persons and the Holders will receive good title to
the securities purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements and
voting trusts which might be created by acts or omissions to act of the Company.
6. (a) In case the Company shall at any time after the date the Warrants
were first issued (i) declare a dividend on the outstanding Common Stock payable
in shares of its capital stock, (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital
<PAGE>
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the Exercise Price,
and the number and kind of securities issuable upon exercise or conversion of
this Warrant, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination, or reclassification, shall
be proportionately adjusted so that the Holder after such time shall be entitled
to receive the aggregate number and kind of shares which, if such Warrant had
been exercised or converted immediately prior to such time, the Holder would
have owned upon such exercise or conversion and been entitled to receive by
virtue of such dividend, subdivision, combination, or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) For the purpose of any computation under this Warrant, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
Nasdaq SmallCap Market) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by Nasdaq or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(c) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(d) In any case in which this Section 6 shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified event,
the Company may elect to defer, until the occurrence of such event, issuing to
the Holder, if the Holder exercised or converted this Warrant after such record
date, the shares of Common Stock, if any, issuable upon such exercise or
conversion over and above the shares of Common Stock, if any, issuable upon such
exercise or conversion on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that the Company shall deliver to the Holder
a due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(e) Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 6, this Warrant shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of shares
(calculated to the nearest thousandth) obtained by dividing (i) the product
obtained by multiplying the number of shares purchasable upon exercise of this
Warrant prior to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Exercise Price, by (ii) the Exercise Price in
effect after such adjustment of the Exercise Price.
(f) Whenever there shall be an adjustment provided in this Section 6, the
Company shall promptly cause written notice thereof to be sent by registered
mail or overnight courier, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(g) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise or
conversion of this Warrant. If any fraction of a share would be issuable on the
exercise or conversion of this Warrant (or specified portions thereof), the
Company shall purchase such fraction for an
<PAGE>
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise or conversion of this Warrant.
7. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of all or substantially all of the
property and assets of the Company, such successor, leasing, or purchasing
corporation, as the case may be, shall (i) execute with the Holder an agreement
providing that the Holder shall have the right thereafter to receive upon
exercise or conversion of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash, or any combination thereof
receivable upon such consolidation, merger, sale, lease, or conveyance by a
holder of the number of shares of Common Stock for which this Warrant might have
been exercised or converted immediately prior to such consolidation, merger,
sale, lease, or conveyance, and (ii) make effective provision in its certificate
of incorporation or otherwise, if necessary, to effect such agreement. Such
agreement shall provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 6.
(b) In case of any reclassification or change of the shares of Common Stock
issuable upon exercise or conversion of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise or conversion of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised or converted immediately prior to
such reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose:
(i) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(ii) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(iii) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 7; or
(iv) to effect any liquidation, dissolution, or winding-up of the Company;
or
(v) to take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend,
<PAGE>
distribution, rights, warrants, or other securities are to be determined, (ii)
the date on which any such reclassification, change of outstanding shares of
Common Stock, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up is expected to become effective, and the
date as of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange their shares for securities or other property, if
any, deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the exercise or
conversion of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. If the Company proposes to claim an exemption under Section 3(b) for a
public offering of any of its securities or to register under the Securities Act
of 1933 (except by a claim of exemption or registration statement on a form that
does not permit the inclusion of shares by its security holders) any of its
securities, it will give written notice to all registered holders of Warrants,
and all registered holders of shares of common stock acquired upon the exercise
of Warrants (the "Common Shares"), of its intention to do so and, on the written
request of any such registered holders given within twenty (20) days after
receipt of any such notice (which request must be made within five (5) years
from the date of this Warrant), the Company will use its best efforts to cause
all Common Shares which such holders shall have requested the registration or
qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the shares
requested for inclusion pursuant to this section be included in the underwriting
on the same terms and conditions as the securities otherwise being sold through
the underwriters. In the event that, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the shares
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
reduced; provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company) who are participating in such
offering. Those shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed 90 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering. All expenses of such offering, except
the fees of special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the Company.
(b) If and whenever the Company is required by Section 10(a) hereof to
effect the registration of Warrants and/or shares issued upon the exercise of
the Warrants under the Securities Act, the Company will:
(i) prepare and file with the Commission a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective for such period as may be reasonably
necessary to effect the sale of such securities not to exceed one (1) year;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities not to
exceed one (1) year;
(iii) furnish to the security holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and
<PAGE>
such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(iv) use its best efforts to register or qualify the securities covered by
such registration statement under such state securities or blue sky laws of such
jurisdictions as such participating holders may reasonably request in writing
within 30 days following the original filing of such registration statement,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
(vi) notify such holders promptly of any request by the Commission for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(vii) prepare and file with the Commission, promptly upon the request of
any such holders, any amendments or supplements to such registration statement
or prospectus which, in the opinion of counsel for such holders (and concurred
in by counsel for the Company), is required under the Securities Act or the
rules and regulations thereunder in connection with the distribution of the
Warrants or shares by such holder;
(viii) prepare and promptly file with the Commission and promptly notify
such holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(x) not file any amendment or supplement to such registration statement or
prospectus to which a majority in interest of such holders shall have reasonably
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
five business days prior to the filing thereof, unless in the opinion of counsel
for the Company the filing of such amendment or supplement is reasonably
necessary to protect the Company from any liabilities under any applicable
federal or state law and such filing will not violate applicable law; and
(xi) at the request of any such holder, furnish on the effective date of
the registration statement and, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel representing the Company
for the purposes of such registration, addressed to the underwriters, if any,
and to the holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii) letters,
dated such respective dates, from the independent certified public accountants
of the Company, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request, in which letter such accountants shall
state (without limiting the generality of the foregoing) that they are
independent certified public accountants within the meaning of the Securities
Act and that in the opinion of such accountants the financial statements and
other financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all material
respects with the applicable accounting requirements of the Securities Act.
<PAGE>
(d) The Company hereby indemnifies the holder of this Warrant and of any
common stock issued or issuable hereunder, its officers and directors, and any
person who controls such Warrant Holder or such Holder of common stock within
the meaning of Section 15 of the Securities Act of 1933, against all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement, prospectus, notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant Holder or such holder of common stock expressly for use
therein; and provided further, however, that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in a subsequent prospectus, such indemnity
agreement shall not inure to the benefit of a holder if a copy of such
subsequent prospectus was not sent or given with or prior to the written
confirmation of the sale of any of shares, if available at or prior to such
written confirmation, to the person asserting any loss, liability, claim or
damage. Each such Holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
11. The Warrant Shares issued upon exercise of the Warrants shall be
subject to a stop transfer order and the certificate or certificates evidencing
such Warrant Shares shall bear the following legend:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, OR (ii) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of Minnesota applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated as of: September 23, 1999
MEDI-JECT CORPORATION
By: /s/ Franklin Pass
----------------------------------
Name: Franklin Pass, M.D.
Title: President, Chief Executive Officer
and Chairman of the Board of Directors
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, Grayson & Associates, Inc. hereby sells, assigns, and
transfers unto _____________________________ a Warrant to purchase _____________
shares of Common Stock, $.01 per share, of Medi-Ject Corporation (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint _______________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: _________________________________
Grayson & Associates, Inc.
By: ___________________________________
Name:
Its:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Minneapolis, MN 55441
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase ____________
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $___________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: ____________________________ Name: _______________________________
(Print)
Address: __________________________ _______________________________
(Signature)
__________________________
<PAGE>
To: Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Minneapolis, MN 55441
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender its Warrant for the
number of shares of Common Stock as shall be issuable pursuant to the cashless
exercise provisions of the within Warrant, in respect of ___________ shares of
Common Stock underlying the within Warrant, and requests that certificates for
such securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: ____________________________ Name: _______________________________
(Print)
Address: __________________________ _______________________________
(Signature)
__________________________
<PAGE>
EXHIBIT 10.4
Page 1 of 26
EXCLUSIVE LICENSE AND SUPPLY AGREEMENT
This Agreement is made and entered into this 22nd day of December, 1999
(hereinafter "Effective Date") by and between Medi-Ject, a Minnesota
corporation, having a place of business at 161 Cheshire Lane, Suite 100,
Minneapolis, Minnesota 55441 (hereinafter "Medi-Ject") and Bio-Technology
General Corp., a Delaware corporation, having a place of business at 70 Wood
Avenue South, Iselin, New Jersey 08830, (hereinafter, "BTG").
Whereas BTG has developed an injectable pharmaceutical for treating human
growth disorders which BTG will produce, promote, distribute and sell in
different pharmaceutical forms for administration in humans for which the
Devices are of potential use and wishes to extend its product package with the
Devices; and
Whereas Medi-Ject has expertise in the design, manufacture and sales of
needle-free injector devices; and
Whereas Medi-Ject owns valuable Medi-Ject Know How (hereinafter defined)
and has been granted patent protection relating to the disposable front-end
chamber and adaptor for such needle-free injector devices and Medi-Ject is
desirous of developing, Exclusively licensing and supplying such devices in the
Territory to BTG for use in the treatment of human growth disorders and further
indications in the Field; and
Whereas BTG and Medi-Ject previously entered into the First Agreement and
were frustrated in the performance of the First Agreement by virtue of BTG
having been preliminarily enjoined from importing and selling hGH in the United
States; and
Whereas Medi-Ject has acquired the rights to an improved Device(s) which is
a needle-free injector device system capable of delivering drugs through the
skin in a controlled manner; and
Whereas BTG and Medi-Ject, in contemplation of BTG eventually being able to
import and market, whether by itself or through one or more third parties, or
both, hGH in the United States, desire to modify and reaffirm their business
arrangement by substituting this Agreement for the First Agreement;
Now Therefore, in consideration of the foregoing and mutual covenants and
conditions set forth herein, the parties hereto mutually agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
1.1 "Affiliate(s)" means any corporation or business entity controlled either
directly or indirectly by beneficial ownership of 50% or more of the voting
stock of, or a
<PAGE>
Page 2 of 26
50% or greater interest in the income of, such corporation or other
business entity, or the maximum ownership permitted by law or
administrative practice.
1.2 "Agreement" means this Exclusive License and Supply Agreement entered into
by and between BTG and Medi-Ject as of the Effective Date.
1.3 "BTG Know How" means all confidential, pharmaceutical, scientific, medical
and marketing information and technical data invented, developed, generated
or acquired by BTG (other than Medi-Ject Know How) relating to the
development, manufacture, use or sale of hGH or the Devices including but
not limited to clinical, pharmaceutical and scientific data and information
required for registration and marketing purposes in the Field in the
Territory other than Improvements which are explicitly dealt with as
separate issues in this Agreement.
1.3 "Device(s)(s)" means those Medi-Ject needle-free injector devices,
including the injector identified in Appendix A, which:
(a) comprise a Disposable Adaptor, Disposable Front End Chamber and a
Power Pack, individually or in any combination,
(b) which exhibit pressure and delivery characteristics satisfactory for
use in humans in the Field, and
(c) which are conceived by, owned by, or licensed, with the right to
sublicense, to Medi-Ject as of the Effective Date,
and any Improvements thereon made by or for Medi-Ject during the term of
this Agreement.
1.5 "Disposable Adaptor(s)" means a system which is used as the interface
between a vial of medicant and the Disposable Front End Chamber.
1.6 "Dispute" shall have the meaning ascribed to it in Section 11.13.
1.7 "Disposable Front End Chamber(s)" means a system which is filled with
medicant at the time of administration and used to hold and administer the
medicant needle-free.
1.8 "Exclusive" and/or "Exclusively" means that only BTG, its sublicensees, its
Affiliates and its designated distributors have the right to sell the
Device(s) or any other product that is developed by Medi-Ject, for use in
the Field.
1.9 "Field" means using hGH to treat any human ailment.
<PAGE>
Page 3 of 26
1.10 "First Agreement" means Exclusive License and Supply Agreement effective as
of June 27, 1995 entered into by and between BTG and Medi-Ject.
1.11 "First Commercial Sale" means the invoice date of the first sale of
Finished Device(s)(s) and /or the Device(s)(s) in the Field and in the
Territory by BTG to an Independent Third Party through customary commercial
channels of distribution after having obtained all necessary governmental
approvals.
1.12 "hGH" means authentic human growth hormone having an amino acid sequence
identical to the amino acid sequence of naturally occurring human growth
hormone produced using mammalian cells or genetically engineered
micro-organisms.
1.13 "Improvements" means inventions, discoveries, developments, ideas and
indications related to the Device(s) including its design, materials used,
manufacture or use, which are first reduced to practice during the term of
this Agreement and which are not encumbered by an Independent Third Party
confidential information agreement between either party and the Independent
Third Party. If any such confidentiality agreement should exist, both
Medi-Ject and BTG shall make all reasonable efforts to request permission
from such Independent Third Party to disclose such information to the other
party.
1.14 "Independent Third Party" means any party other than Medi-Ject, BTG and
their Affiliates.
1.15 "Medi-Ject Know How" means all confidential, engineering, scientific and
medical information, technical data and marketing studies developed or
acquired by or on behalf of Medi-Ject or under the control of Medi-Ject
(other than BTG Know How) relating to the development, manufacturing, use
and sale of Device(s)(s), including, but not limited to, engineering,
design, analytical and clinical data, product forms, control assays and
specifications, methods of manufacturing and preparation data and
specifically including all information contained in all health registration
dossiers filed in various countries of the world to the extent that such
information is and continues to be confidential and shall further include
all confidential Independent Third Party data which Medi-Ject has access to
and is free to disclose without restriction or compensation to such
Independent Third Party other than Improvements which are explicitly dealt
with as separate issues in this Agreement.
1.16 "Net-hGH-Sales" means gross invoice of hGH sold by BTG, its Affiliates, and
its sublicensees to Independent Third Party customers, less (a) returns,
quantity and cash discounts, fees for hGH product distribution to BTG and
allowances thereon actually allowed (but not including cash discounts for
prompt payment); (b) government, managed care and other contract rebates,
including governmental rebates required by law and retroactive price
reductions imposed by public authorities; (c) sale taxes, use taxes and
other similar taxes; (d) any transportation,
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handling and insurance charges borne by the party, its Affiliates or
sublicensees calculated as an average of such party's actual costs for all
of its products in this category.
1.17 "Patent Rights" means those patents and patent applications identified in
Appendix B and all patents and patent applications filed by, or issued,
licensed or assigned to Medi-Ject in the Territory and during the Term
which relate to the Device(s) and which are useful in the Field, together
with any and all patents that may issue or may have issued therefrom,
including any and all divisions, continuations, continuations-in-part,
extensions, additions or reissues of or to any of the aforesaid patent
applications.
1.18 "Power Pack" means a medical device that serves as the source of power for
needle-free injecting of humans.
1.19 "Territory" means the United States of America, its territories and
possessions.
ARTICLE 2 -- DESIGN AND DEVELOPMENT
-----------------------------------
2.1 Medi-Ject hereby agrees to Exclusively design, develop and provide to BTG,
Device(s)(s) for use in the Field having a range of power settings and
orifice sizes suitable for use with BTG's pharmaceutical drug and vehicle
as described in specifications from time to time which are approved by both
parties.
2.2 Medi-Ject and BTG each agree to maintain Medi-Ject Know How or BTG Know How
received by it from the other party and Improvements and status of the
Device(s) development as Confidential Information and will exercise due
care to prevent its unauthorized disclosure during and for a period of ten
(10) years after the termination of this Agreement. Further, BTG will
provide Medi-Ject with the results of the development studies relating to
the performance of the Device(s) which will be considered as Confidential
Information. Confidential Information shall further include but not be
limited to, all business, marketing, scientific and technical information
including all designs, prototypes, special tooling, and any other
information disclosed hereunder and under the Confidentiality Agreement
between the parties in existence prior to the date of this Agreement,
except any portion thereof which:
(a) is known to Medi-Ject, as evidenced by Medi-Ject's written records,
before the disclosure by BTG;
(b) is disclosed by Medi-Ject after acceptance of this Agreement by a
third party, who is not under contract to Medi-Ject and who has a
right to make such disclosure; or
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(c) is or becomes party of the public domain through no fault of Medi-
Ject;
(d) is known to BTG, as evidenced by BTG's written records, before the
disclosure by Medi-Ject;
(e) is disclosed to BTG after acceptance of this Agreement by a third
party, who is not under contract to BTG and who has a right make such
disclosure; or
(f) is or becomes party of the public domain through no fault of BTG;
(g) both parties acknowledge and agree to allow disclosure of such
information described in this Section 2.2 by the receiving party, if
such information is required by court order, provided that the
disclosing party shall give the other party an opportunity to review
and approve such disclosure, said review and approval not to be
unreasonably withheld or delayed by either party.
2.3 Both parties agree not to use each other's Know How for any purpose other
than agreed to in this Agreement.
2.4 Both parties shall cooperate to secure regulatory approval for use of the
Device(s) with hGH.
2.5 Medi-Ject will provide to BTG any Improvements in relation to the
Device(s).
2.6 BTG shall provide to Medi-Ject an annual summary, commencing with the first
calendar year after the First Commercial Sale, of its marketing plans for
the Devices for information only. Medi-Ject shall treat such annual
summaries from BTG as Confidential Information.
2.7 Medi-Ject shall make available to BTG, on a reasonable consultation basis,
such advice of its technical personnel as may reasonably be requested by
BTG in connection with the Device(s).
2.8 Throughout the term of this Agreement, Medi-Ject and BTG shall provide to
each other promptly but no longer than within three (3) business days after
receipt all reports (each party is aware of) on adverse effects, which may
affect human use of the Devices. Upon receipt of any such report, the
parties shall consult each other and decide what consequences the new
observations shall have for the future sale of the Devices in the Field in
the Territory. Nothing contained herein shall, however, be construed as
restricting the obligations of either party to make a timely report of such
matter to the relevant government authorities in the Territory.
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2.9 Medi-Ject at its own cost shall have a continuing right in the Territory to
use, have used, manufacture and have manufactured Device(s) in the Field
for investigational and developmental purposes only, provided always that
Medi-Ject shall first inform BTG of its intentions so to do and shall
ensure that the said developments are first made available to BTG and are
not to the detriment of BTG in the Field in the Territory.
2.10 BTG at its own cost shall have a continuing right in the Territory to test,
and have tested, competitive needle-free injector drug delivery products
which have the same intended use as the Device(s) in the Field for
investigational and developmental purposes only, provided always that BTG
shall first inform Medi-Ject of its intentions so to do and shall ensure
that said developments are first made available to Medi-Ject and are not to
the detriment of Medi-Ject in the Field in the Territory.
ARTICLE 3 -- LICENSE GRANT, LICENSING FEES AND ROYALTIES
--------------------------------------------------------
3.1 Medi-Ject hereby grants to BTG the Exclusive and sublicensable right in the
Field in the Territory, under the Patent Rights and Medi-Ject Know How and
Improvements only for the Field, to use, have used, sell and have sold, but
not manufacture, the Device(s) in the Territory for the Term of this
Agreement.
3.2 All proprietary rights and rights of ownership with respect to the Patent
Rights and Medi-Ject Know How shall at all times remain solely with
Medi-Ject and BTG shall have no proprietary rights in or to the Patent
Rights and Medi-Ject Know How other than those specifically granted herein.
3.3 All proprietary rights and rights of ownership with respect to BTG Know How
shall at all times remain solely with BTG and Medi-Ject shall have no
proprietary rights in or to BTG Know How other than those specifically
granted herein.
3.4 All proprietary rights and rights of ownership with respect to Improvements
pertaining to Devices shall at all times remain solely with Medi-Ject and
BTG shall have no proprietary rights in or to the Device(s) related
Improvements other than those specifically granted herein.
3.5 All proprietary rights and rights of ownership with respect to Improvements
pertaining to pharmaceutical drugs shall at all times remain solely with
BTG and Medi-Ject shall have no proprietary rights in or to the
pharmaceutical drug related Improvements other than those specifically
granted herein.
3.6 BTG shall exert its best reasonable efforts to commercialize and to create
a demand for the Devices in the Territory under its own trademarks.
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3.7 BTG will be responsible for ensuring that the use, promotion and sale of
the Device(s) within the Territory is in accordance with the legal and
regulatory requirements of the Territory.
3.8 The choice and use of any trademarks to be used with the Device(s) other
than those Trademark(s) already used by Medi-Ject, shall remain with BTG.
3.9 Ownership of and rights to the BTG chosen trademark(s) shall remain with
BTG during and beyond the term of this Agreement. The use of the
trademark(s) shall be free of royalties and any other payments.
3.10 Nothing in this Agreement shall be construed, either explicitly or
implicitly, to grant either party a license to use each other's trademarks.
3.11 In consideration for Medi-Ject's Exclusive license to BTG as per this
Agreement, BTG has paid to Medi-Ject and Medi-Ject hereby acknowledges
receipt of licensing fees in the amount of Two Hundred Fifty Thousand US
Dollars (US$250,000) which constitutes payment in full of the licensing
fee.
3.12 Licensing fees and all other payments by BTG to Medi-Ject accruing in this
Agreement shall be paid in United States currency. Medi-Ject shall invoice
BTG in United States currency.
3.13 BTG shall pay to Medi-Ject royalties as follows in the event BTG uses its
right to use or have used, sell or have sold the Device(s) in the Field in
the Territory:
(a) BTG shall pay Medi-Ject a cumulative royalty on all hGH sold for use
with Device(s). The cumulative royalty shall be calculated based on
the Net-hGH Sales using Device(s) within the Territory after First
Commercial Sale where Device(s) is used or sold with hGH, and the
cumulative royalty rate shall be based on increased hGH marketshare,
in dollars, as follows:
% hGH Marketshare in dollars % Cumulative Royalty
using Device(s) to Medi-Ject
---------------------------- --------------------
0 to 10 1.0
10 to 15 2.5
>15 4.0
(b) BTG shall promptly give notice to Medi-Ject of the date of the First
Commercial Sale in the Field in the Territory.
(c) In the event the royalty rates set forth hereabove exceed those
allowable by applicable law or governmental rule or regulation, they
shall be so modified as to conform to the maximum royalty rate
allowable.
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3.14 Royalties due to Medi-Ject under Section 3.13 of this Agreement shall
accrue when payment for Device(s) are invoiced by BTG to any Independent
Third Party in the Territory in accordance with the provisions below.
3.15 Royalties occurring hereunder shall be due and payable on the sixtieth
(60th) day following the close of each quarterly period (March, June,
September, December).
3.16 Royalties accruing hereunder shall be paid to Medi-Ject or Medi-Ject's
designee, duly named by Medi-Ject in written notice to BTG.
3.17 Royalties and all other payments by BTG to Medi-Ject accruing in this
Agreement shall be paid in United States of America dollar currency.
3.18 If at any time, legal restrictions in the Territory prevent the prompt
payment of royalties or any portion thereof accruing hereunder, the parties
shall promptly meet to discuss suitable and reasonable alternative methods
of reimbursing Medi-Ject the amount of such running royalties.
3.19 Each payment of royalties made to Medi-Ject hereunder shall be accompanied
by a written report, signed by a financial officer of BTG, showing the
Net-hGH-Sales and Net-hGH-Sales using the Device(s) for the months of the
quarterly period for which payment is being made. In the event that no
royalty is due to Medi-Ject hereunder for any such quarterly period, BTG
shall so report.
3.20 BTG shall maintain and keep for a period of at least three (3) years,
complete and accurate records in sufficient detail to enable any royalties
which shall have accrued hereunder to be determined.
3.21 Upon the request of Medi-Ject, but not exceeding once in any calendar year
period, with a minimum of two (2) weeks notice from Medi-Ject, BTG shall
permit during normal business hours an independent public accountant,
selected by Medi-Ject and reasonably acceptable to BTG to have access to
all such records of BTG's as may be necessary to verify the accuracy of the
royalty reports and payment submitted to Medi-Ject hereunder.
(a) Any such inspection of BTG's records shall be at Medi-Ject's expense,
except that if any such inspection reveals a deficiency in an amount
of running royalty actually paid to BTG hereunder in any quarterly
period of two percent (2%) or more of the amount of such running
royalty actually due to Medi-Ject hereunder, then the expense of such
inspection shall be borne promptly by BTG. If such inspection reveals
a surplus in the amount of running royalty actually paid to Medi-Ject
by BTG, Medi-Ject shall reimburse BTG the surplus.
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ARTICLE 4 -- SUPPLY AND MARKETING
---------------------------------
4.1 Medi-Ject agrees to Exclusively supply and BTG agrees to purchase all its
requirements of Device(s) in the Field and in the Territory from Medi-Ject
for an initial lterm of the longer of five (5) years following the First
Commercial Sale of a Device(s) in the Field in the Territory or expiration
of the last material Patent Right coverage for Device(s).
4.2 The price of a Device(s) shall be $200 per Power Pack, $3.00 per Disposable
Adaptor and $3.00 per Disposable Front End Chamber.
(a) The prices for the Disposable Adaptor and the Disposable Front End
Chamber are based on the assumption that the FDA will approve the
Device(s) and that such approval will permit each to be used at least
five (5) times before disposal. If such approval for such multiple
uses is not granted or, if granted, the market does not accept
multiple uses, then the parties shall meet and negotiate in good faith
a lower price for each taking into account BTG's need for competitive
pricing in the market, which price will in any event be not less than
Medi-Ject's cost to produce each item.
(b) The prices may be increased or decreased only by mutual agreement of
the parties taking into account the cost of goods, contributions to
Medi-Ject, manufacturing costs Medi-Ject must incur and competitive
disadvantage that Medi-Ject might incur to manufacture the Device(s)
for BTG to comply with the terms of this Agreement and fully taking
into account BTG's need for competitive pricing in the market.
4.3 Should additional tooling be necessary to expand production of Device(s)
for BTG, BTG agrees to pay for any unique tooling costs required for
Medi-Ject to commercially manufacture BTG's requirements of the Device(s).
Any tooling which is uniquely designed for BTG's exclusive use in the Field
in the Territory will be prenotified to BTG as to cost, use and design. BTG
will decide if, and when, it wants Medi-Ject to proceed, in which case BTG
will pay for such tooling. The uniquely designed tooling will be owned,
controlled and maintained by Medi-Ject subject to Section 2.2. BTG shall
approve such additional proposed expenses prior to such expenses being
incurred.
4.4 Medi-Ject will be responsible for diligently filing and prosecuting a
510(K) for BTG's Device(s) with the U.S. Food and Drug Administration
(FDA), and other such counterpart regulatory applications in the Territory
as BTG chooses, it being understood that BTG will reimburse all Expenses
incurred by Medi-Ject for filing such regulatory applications in the
Territory selected by BTG provided that BTG approves such Expenses prior to
such Expenses being incurred. BTG will be responsible for diligently
developing and generating appropriate data for
<PAGE>
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regulatory filings in the Territory to seek approval to market the
Device(s) as part of BTG's hGH Product. BTG shall be responsible for
maintaining all regulatory authority in the Territory for the BTG
pharmaceutical drug associated with this Agreement.
4.5 Both parties shall have full access to each other's necessary and
appropriate documentation to allow for regulatory submissions.
(a) BTG shall own and maintain all pharmaceutical registrations licenses
and market authorizations based on said pharmaceutical registration
licenses for the term of this Agreement and beyond unless otherwise
provided for in this Agreement. BTG will provide Medi-Ject a written
copy of all documentation used in the regulatory process which allows
BTG to utilize effectively the Device(s) with hGH and obtain approval
from the FDA for First Commercial Sale in the Territory.
(b) Medi-Ject will have the exclusive right to cross reference BTG's
regulatory filings within the Field with the FDA on a worldwide basis
for all indications not in the Field and not in the Territory.
(c) BTG agrees to file all necessary documents required to allow Medi-Ject
to exercise such rights to cross reference such BTG regulatory
filings.
(d) Medi-Ject shall own all 510(K) or other such counterpart regulatory
applications and market authorizations based on said 510(K) or other
regulatory applications for the Term and beyond unless otherwise
provided for in this Agreement.
4.6 Medi-Ject will be responsible for and have sole control over and shall
diligently prosecute and maintain the application for, prosecution of and
maintenance of any patent applications and patents which incorporate any
Improvements that may result from this Agreement or any Medi-Ject Know How
that is related to Device(s). Such patents will be owned by Medi-Ject as
per Article 3. The cost associated with the application for prosecution of
the maintenance of the patent applications and patents shall be borne by
Medi-Ject.
4.7 BTG shall be Exclusively responsible and shall, whenever legally permitted
to do so, use reasonable best efforts to diligently market and sell the
Device(s) in the Field in the Territory by itself, or through Affiliates or
sublicensees as BTG may elect in its sole discretion.
(a) BTG shall at all times maintain written communication with Medi-Ject
as to its plans to market, continued marketing, and sales of Device(s)
in the Territory. Such information shall be used by Medi-Ject only for
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information purposes and shall be treated by Medi-Ject as BTG's
Confidential Information.
(b) Subject to any delay pursuant to Section 6.6, BTG and Medi-Ject shall
cooperate to effect the filing set forth in Section 4.4 and any
filings for governmental approval to market the Device(s) which are
required to be made by BTG, within six (6) months of the date that BTG
is legally permitted to sell hGH in the Territory; provided, however,
that the Device(s) is in the final form required by BTG and available
in sufficient quantities to conduct any evaluations or the like
required for filing and assuming further that no clinical trials are
required -- any delay occasioned by any failure of one or more of
these conditions shall extend the six (6) month period accordingly.
(c) Subject to any delay pursuant to Section 6.6, the First Commercial
Sale shall occur within six (6) months of the date that all necessary
governmental approvals have been obtained.
4.8 BTG shall promptly give notice to Medi-Ject of the date of the First
Commercial Sale.
4.9 With the understanding that Medi-Ject has developed considerable expertise
in the use and handling of needleless injectors, Medi-Ject will upon its
own approval, which will not be unreasonably withheld, offer its services
for training BTG and other nominated personnel during the product
development period prior to First Commercial Sale. BTG may wish to avail
itself of this expertise and shall reimburse Medi-Ject for all Expenses
associated with Medi-Ject providing such training.
ARTICLE 5 -- ORDERS OF DEVICES
------------------------------
5.1 The parties shall meet after first regulatory submission of the Device(s)
to negotiate in good faith an ordering schedule.
(a) These negotiations will incorporate Medi-Ject's anticipated need for
six (6) months' notice for initial commercialization, the need for a
rolling twelve (12) month forecast, and BTG's need to agree batch
sizes, ordering dates and delivery dates.
(b) The parties shall reach agreement on a reasonable initial order
amount.
5.2 BTG agrees to send to Medi-Ject at least six (6) months before the intended
shipping date of each order, a firm and binding purchase agreement for such
order; provided that such binding purchase agreement can be amended
positively
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or negatively by up to twenty-five percent (25%) by BTG within
ninety (90) days after the original such binding purchase agreement has
been issued by BTG to Medi-Ject; BTG may make such adjustment to a binding
purchase agreement provided such adjustment to a binding purchase agreement
does not impact on the ability of Medi-Ject to deliver Device(s) to BTG on
the agreed upon delivery date of the original binding purchase order.
5.3 Quantities of Device(s) to be supplied shall conform to the specification
approved by both parties and for manufacture or such other specification
agreed to in writing from time to time between the parties.
5.4 Medi-Ject shall invoice BTG upon each shipment of Device(s) and BTG shall
pay the full balance of each purchase agreement within thirty (30) days of
delivery by Medi-Ject to the carrier designated by BTG.
5.5 Title and risk of loss with respect to Device(s) shipped by Medi-Ject for a
given BTG purchase agreement shall pass to BTG upon delivery by Medi-Ject
to the carrier designated by BTG.
5.6 Medi-Ject shall package at Medi-Ject's cost the Device(s) in containers
suitable for transport by BTG's designated carrier.
5.7 Medi-Ject will ship the Device(s), appropriate product package and bulk
accessories in numbers ordered by BTG, to up to three (3) destinations as
designated by BTG.
(a) BTG shall be responsible for distribution of the Device(s) from these
designated points.
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES
-------------------------------------------
6.1 Medi-Ject warrants that it is the Exclusive owner of all rights, title and
interest in and to the Patent Rights and Medi-Ject Know How and that it is
free to enter into this Agreement and to carry out all of the provisions
hereof including its agreement to grant to BTG an Exclusive license with
respect to the Devices in the Field and in the Territory.
6.2 Medi-Ject indemnifies and agrees to hold BTG harmless against disputes
arising from Independent Third Parties as more fully set in this Article 6.
6.3 Medi-Ject hereby represents that, to the best of its knowledge, none of the
Patent Rights infringe on the patents or other legally protected
proprietary rights of any Independent Third Party in the Territory.
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6.4 Medi-Ject and BTG shall each give to the other prompt written notice of any
claim or action made against either of them alleging that the manufacture,
use or sale of the Devices or the Improvements in the Territory infringe
the rights of an Independent Third Party.
(a) Medi-Ject and BTG agree to cooperate and collaborate with each other
in undertaking a full investigation of the situation and in taking
such action as they shall agree is appropriate in the circumstances in
defense or prosecution of such infringement.
6.5 In the event of the threat of institution of any suit by a third party
against Medi-Ject, BTG or its Affiliates or sublicensees for patent
infringement involving the manufacture, use, sale, distribution or
marketing of Device(s), Improvements or hGH in the Territory, the party
threatened or sued shall promptly notify the other party in writing.
(a) In the event the suit is brought for patent infringement involving the
manufacture, use, sale, distribution or marketing of the Device(s),
Medi-Ject shall have the sole right to control the defense, which
shall include, but is not limited to, the right to choose counsel, the
right to control the strategy of the case and the right to control and
enter into any settlements. The cost of the defense and any damages
awarded shall be borne by Medi-Ject.
(b) In the event the suit is brought for patent infringement involving the
manufacture, use, sale, distribution or marketing of hGH, BTG shall
have the sole right to control the defense, which shall include, but
is not limited to, the right to choose counsel, the right to control
the strategy of the case and the right to control and enter into
settlements. The cost of the defense and any damages awarded shall be
borne by BTG.
(c) In the event the suit is brought for patent infringement involving the
manufacture, use, sale, distribution or marketing of both hGH and the
Device(s), then Medi-Ject and BTG shall jointly control the defense,
which shall include, but is not limited to, the right to choose
counsel, the right to control the strategy of the case and the right
to control and enter into settlements. Any dispute regarding the
control of the defense shall be determined in accordance with Section
11.11. The cost of the defense and any damages awarded shall be shared
equally.
6.6 It is understood and agreed to by the parties that it shall not be a breach
of this Agreement if BTG, at any one or more times during the term of this
Agreement, does not sell or stops selling Device(s) in the Territory
because:
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(a) BTG is, at any one or more times during the Term of this Agreement,
enjoined from selling hGH or Improvements or Device(s), or
(b) BTG is, at any one or more times during the Term of this Agreement,
sued as a result of the manufacture, use, sale, distribution or
marketing of the Device(s) or Improvements or hGH;
provided, however, that BTG must resume sale of Device(s) in the Territory
whenever: (i) it is not enjoined from selling any one or more of Device(s),
Improvements and hGH, or (ii) a court of competent jurisdiction makes a
final, non-appealable determination that permits BTG to sell Device(s),
Improvements and hGH in the Territory. If a court of competent jurisdiction
makes a final, non-appealable determination precluding BTG from
manufacturing, using, selling, distributing or marketing Device(s) or
Improvements or hGH in the Territory, BTG may elect, in its sole
discretion, to terminate this Agreement upon written notice to Medi-Ject
without any liability to Medi-Ject.
6.7 In the event that either party determines that an Independent Third Party
is making, using or selling a product that may infringe the Patent Rights,
it shall promptly notify the other party in writing.
(a) Medi-Ject, in its sole discretion, may elect to bring suit against
such alleged infringer.
(b) Medi-Ject shall have the sole right to control the prosecution of the
case, which shall include, but is not limited to, the right to chose
counsel, the right to control the strategy of the case and the right
to control and enter into any settlements; provided, however, that
Medi-Ject shall not settle any such suit without the prior written
approval of BTG, which approval shall not be unreasonably withheld.
(c) BTG agrees to provide all reasonable assistance to Medi-Ject that is
requested by Medi-Ject. Medi-Ject shall pay all expenses incurred by
BTG.
(d) The cost of prosecuting the case shall be borne by Medi-Ject.
(e) Any recoveries shall belong solely to Medi-Ject.
(f) If ninety (90) days after receiving a written request from BTG to do
so, Medi-Ject elects not to bring suit, BTG shall have the right to
commence, prosecute and control an infringement action in BTG's name
and at its own expense, provided however, that BTG shall not settle
any such suit without the prior approval of Medi-Ject, which approval
shall not be unreasonably withheld or delayed. Medi-Ject agrees to
provide all
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reasonable assistance to BTG that is requested by BTG. Any monetary
recovery shall belong solely to BTG.
6.8 To the best of Medi-Ject's knowledge, Medi-Ject warrants all elements
contained in Medi-Ject Know How and in the registration dossiers, the
Patent Rights and all other information and data in the form of statements,
facts and figures and all information under which this Agreement is
concluded are true and accurate.
6.9 Medi-Ject warrants that it manufactures to International Quality Assurance
standards, that all Devices are manufactured to GMP.
6.10 Throughout the term of this Agreement and with reasonable written notice,
but not normally exceeding once in any calendar year period both parties
agree and their respective suppliers shall permit, during normal business
hours, an inspection of its development, manufacturing and control
facilities by personnel of, or chosen by the party conducting the
inspection.
6.11 Medi-Ject warrants that all Device(s) delivered hereunder shall conform to
the specifications agreed to by both parties, shall be fit for its intended
use(s) in the Field, shall be free from defects in workmanship and
materials as per specification agreed to by both parties and as such will
be supplied with a one (1) year guarantee from normal usage.
ARTICLE 7 -- REJECTED DEVICES OR SHORTAGES
------------------------------------------
7.1 Notwithstanding any payment made by BTG for Devices in Section 5.4, BTG may
reject any Device(s) which fails to meet specifications as agreed by both
parties. BTG shall, within thirty (30) days after its receipt of any
shipment of Device(s), notify Medi-Ject in writing of any claim relating to
any shortage in quantity of any shipment of Device(s).
(a) In the event of such shortage, Medi-Ject shall make up the shortage
within thirty (30) days of receiving such notice, at no additional
cost to BTG.
(b) In the event of rejection of Device(s), BTG shall confirm the
rejection in writing and Medi-Ject shall replace the rejected
Device(s) within ninety (90) days of receiving such notice at no
additional cost to BTG.
(c) In all instances of rejections, Medi-Ject shall make arrangement with
BTG for the return or destruction of any rejected Device(s), such
return shipping charges to be paid by Medi-Ject.
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ARTICLE 8 -- INDEMNIFICATION
---------------------------
8.1 Medi-Ject will indemnify and hold BTG harmless against any and all
liability, damage, loss, cost or expense resulting from any third party
claims made or suits brought against BTG which arise from Medi-Ject's
willful maleficence in the use or sale of any Device(s) herein or
Medi-Ject's breach of the representations and warranties set forth herein.
(a) In evidence thereof, within one (1) month of the Effective Date of
this Agreement, Medi-Ject will provide BTG with a certificate of
insurance and copy of such policy showing BTG to be named on
Medi-Ject's product liability insurance.
8.2 BTG will indemnify and hold Medi-Ject harmless against any and all
liability, damage, loss, cost or expense resulting from any third party
claims made or suits brought against Medi-Ject which arise from BTG's
willful maleficence in the use or sale of any Device(s) in the Field
including but not limited to non-compliance by BTG, BTG's affiliates and
Sublicensees, with written instructions given by Medi-Ject in connection
with the Devices and any and all claims relating to the manufacture, use or
sale of any such pharmaceutical product used with the Device(s).
(a) In evidence thereof, within one (1) month of the Effective Date of
this Agreement, BTG will provide Medi-Ject with a certificate of
insurance and copy of such policy showing Medi-Ject to be named on
BTG's product liability insurance.
8.3 The party seeking indemnification shall promptly notify the other party of
any claims asserted against it for which such indemnification is sought,
and shall promptly deliver to the party from whom indemnification is sought
a true copy of any summons or other process, pleading or notice issued in
any lawsuit or other proceeding to assert or enforce such claim.
(a) The indemnifying party reserves the right to control the
investigation, trial and defense of such lawsuit or action (including
all negotiations to effect settlement) any appeal arising therefrom
and to employ or engage attorneys of its own choice, provided,
however, that such indemnifying party may not settle any such lawsuit,
claim or action if such settlement includes non-monetary or equitable
relief that would materially and adversely affect the indemnified
party, without the consent of that party, which shall not be
unreasonable withheld.
<PAGE>
Page 17 of 26
(b) The party seeking indemnification may, at its own cost, participate in
such investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom.
(c) The party seeking indemnification, its employees, agents and
representatives shall provide full cooperation to the indemnifying
party at all times during the pendency of the claim or lawsuit,
including, without limitation, providing the party with all reasonably
available information concerning the claim.
ARTICLE 9 -- FORCE MAJEURE; FAILURE TO SUPPLY
---------------------------------------------
9.1 Any delay in the performance of any of the duties or obligations of either
party hereto shall not be considered a breach of this Agreement provided
that such delay is caused by or is the result of any acts of God, acts of
the public enemy, insurrections, riots, labor disputes, including strikes,
lockouts or boycotts, fires, explosions, floods, or other unforeseeable
causes beyond the control and without the fault or negligence of the party
so affected. The party so affected shall give prompt notice to the other
party of such cause as rapidly as possible.
9.2 If Medi-Ject fails, as set forth in Section 9.1, to supply all or part of
the Licensed Product quantities ordered by BTG as per Section 5.1, BTG may,
in its discretion, (a) require Medi-Ject to supply the undelivered
Device(s) at a future date mutually agreed upon or (b) decrease the
quantity of Device(s) originally ordered by BTG and deficient from
Medi-Ject by that quantity not supplied by Medi-Ject due to Medi-Ject
informing BTG force majeure due to Section 9.1.
9.3 If Medi-Ject is unable to supply BTG partly or in total of the quantities
ordered by BTG over a period of three (3) months, Medi-Ject is obligated to
find another manufacturing source and has to guarantee the supply of BTG's
requirements of the Device(s) at the then current Medi-Ject price of
Device(s) in the Field in the Territory, (a) if Medi-Ject cannot find
another manufacturing source to satisfy Medi-Ject manufacturing commitments
as per Section 9.2(b), BTG may decrease the quantity of Device(s)
originally ordered by BTG and deficient from Medi-Ject by that quantity not
supplied by Medi-Ject due to Medi-Ject informing BTG force majeure due to
Section 9.1, and seek supply from an Independent Third Party to which
Medi-Ject will provide under strict confidentiality and limitation any
necessary know-how, information, licenses or tooling to the third party to
produce only enough Device(s) to fulfill Medi-Ject's delinquent quantity
obligation to BTG during Section 9.1 provisions.
(a) When Medi-Ject can once again supply BTG's requirements, the third
party supply commitments will be terminated and all know-how,
<PAGE>
Page 18 of 26
information, licenses and tooling transfer to the party for
manufacturing during Section 9.1 provisions will at Medi-Ject's sole
discretion be destroyed or transferred, and Medi-Ject will resume
supplying BTG with Device(s).
(b) During Independent Third Party manufacturing of Device(s) as per
Section 9.3(a), Medi-Ject will not guarantee pricing of Device(s) in
the Field in the Territory.
9.4 During Medi-Ject's default as described in Section 9.2(b), if BTG's pricing
received from the Independent Third Party exceeds Medi-Ject's Device(s)
pricing as per Section 4.2, BTG's obligation to pay royalties to Medi-Ject
for sales of Device(s) provided by the Independent Third Party and sold by
BTG shall cease until such time that: (a) pricing by Independent Third
Party is equal or less than Medi-Ject's pricing as per Section 4.2 or (b)
Medi-Ject resumes manufacturing of BTG's Device(s).
ARTICLE 10 -- TERM AND TERMINATION
----------------------------------
10.1 This Agreement shall commence upon the Effective Date and shall continue in
effect for the longer of five (5) years following the First Commercial Sale
of Device(s) in the Field in the Territory or expiration of all patent
coverage for Device(s) unless earlier terminated as provided below.
10.2 Notwithstanding the provisions of Section 10.1, if any party shall enter
into liquidation either voluntary or compulsory (except for the purpose of
amalgamation or reconstruction previously approved of in writing) or in any
manner assign this Agreement or make any assignment for the benefit of
creditors or cease or threaten to cease to carry on business or is unable
to pay its debts as they fall due this Agreement shall terminate
immediately.
(a) To protect BTG's interests in the event Medi-Ject is acquired or
enters into a Chapter 11 proceeding or other bankruptcy proceeding or
into any liquidation, dissolution or winding up of the affairs of the
corporation either voluntary or compulsory, or in any manner assigns
this Agreement or makes any assignment for the benefit of creditors or
ceases or threatens to cease to carry on business or is unable to pay
its debts as they fall due, Medi-Ject will within fifteen (15) days of
the Effective Date, place in escrow with an Independent Third Party
designated by BTG, all Know How, information, licenses and tooling
required to manufacture Device(s) and such escrowed items along with
any inventory of Devices shall be immediately transferred to BTG upon
the occurrence of any of the
<PAGE>
Page 19 of 26
aforesaid events, the licenses granted to BTG pursuant to Article 3
shall be deemed and shall become fully-paid, perpetual and
irrevocable.
10.3 Except as provided in Section 6.6, either party may terminate upon the
breach of any material provision of this Agreement if the breach is not
cured within ninety (90) days after receipt of written notice thereof to
the breaching party.
(a) Should, however, the other party remedy the default upon which said
notice is based within the said ninety (90) day period, the notice
shall be without effect and this Agreement shall continue in full
force and effect.
10.4 In the event that this Agreement is terminated prior to the date of its
expiration in the Territory, due to the fault of BTG, BTG shall promptly
make an accounting to Medi-Ject of the inventory of all Devices which it
and its agents and distributors have on hand in the Territory, if any, as
of the date of such termination and said parties shall thereafter have the
right for a period of six (6) months after the said termination to sell
such inventory of the Devices.
(a) Medi-Ject will instruct BTG, and BTG will comply with said
instructions, to dispose of any remaining inventory of the Device(s)
in accordance with regulatory requirements or return remaining
inventory of Device(s) to Medi-Ject. BTG shall pay all expenses for
such disposal or return of Device(s).
10.5 Except as provided in Section 6.6, termination of this Agreement, due to
the fault of either party, shall be without prejudice to any other rights
or remedies then or thereafter available to either party under this
Agreement or otherwise.
10.6 Termination of the Agreement prior to the expiration of its term shall not
affect in any way either party's waiver of or failure to take action with
respect to any previous default hereunder.
10.7 Except as provided in Section 6.6, BTG may terminate this Agreement at any
time during the supply period (Article 4) with one hundred eighty (180)
days written notice to Medi-Ject of intent to terminate provided that all
outstanding invoices, purchase orders and other payments due to Medi-Ject
as per this Agreement are paid-in-full by BTG prior to such termination.
10.8 If a delay in performance is caused by those acts set forth in Section 9.1,
excluding any delay pursuant to Section 6.6, and such delay last more than
six (6) months, any party shall have the right to immediately terminate
this Agreement.
10.9 Upon termination of this Agreement for any reason, all licenses granted
hereunder, except as provided in Section 10.2(a), shall immediately
terminate and each party shall return all Know How and Confidential
Information to the party
<PAGE>
Page 20 of 26
from which it was received, provided, however, that if Section 10.2(a) is
applicable, BTG shall retain all Know How and Confidential Information
received from Medi-Ject.
10.10 Except as provided in Section 10.2(a), BTG agrees that it will not use any
Medi-Ject Know How or Confidential Information of Medi-Ject, either during
or at any time after termination of this Agreement, to develop a competing
product to the Device(s)(s) unless such product has been authorized by
Medi-Ject.
10.11 Medi-Ject agrees that it will not use any BTG Know How or Confidential
Information of BTG, either during or at any time after termination of this
Agreement, to develop a competing product to BTG's hGH product unless such
product has been authorized by BTG.
ARTICLE 11 - MISCELLANEOUS
--------------------------
11.1 This Agreement constitutes the entire understanding between the parties
with reference to the subject matter hereof and no statements or other
agreements, oral or written, shall vary or modify the written terms. This
Agreement may be modified by mutual written agreement of the parties.
11.2 All representations, warranties, covenants and agreements set forth in this
Agreement and all duties and obligations of the parties hereunder shall
survive final payment and the acceptance of Device(s).
11.3 The parties expressly agree and contract that it is not the intention of
either party to violate any public policy, statutory or common laws, rules,
regulation, treatises or decisions of any government or agency thereof of
any country. If any word, sentence, paragraph, clause or combination
thereof of this Agreement is judicially or administratively interpreted or
construed as being in violation or any such provisions in any country, such
words, sentences, paragraphs, clauses of combinations thereof shall be
inoperative in each such country and the remainder of this Agreement shall
remain binding upon the parties hereto.
11.4 Sections 2.2, 4.5, 8.1, 8.2, 8.3, 10.2, 10.4, 10.9, 10.10, 10.11, 11.2,
11.7 and Article 12 shall survive this Agreement.
11.5 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective assigns and successors in interest;
provided, however, neither party shall assign this Agreement in whole or in
part without the written consent of the other, which consent shall not be
unreasonably withheld.
<PAGE>
Page 21 of 26
11.6 All notices hereunder shall be in writing and shall be sent by registered
or certified airmail, facsimile, telex, to the following addresses for the
respective parties or to such other address as either party may specify by
notice to the other party during the term of this Agreement:
If to Medi-Ject:
Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
Telephone: (612) 475-7705
Facsimile: (612) 476-1009
If to BTG
President
Bio-Technology General Corp.
70 Wood Avenue South
Iselin, New Jersey 08830
Telephone: (732) 632-8800
Facsimile: (732) 632-8810
Such notice shall be effective as of its date of sending of mailing or
transmission.
11.7 The validity and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota in the
United States of America.
11.8 All titles and captions in the Agreement are for convenience only and
shall not be of any meaning or substance.
11.9 Any waiver by any party hereto of any breach of any term or condition of
the Agreement shall not constitute a waiver of any other breach of the
same or any other term or condition.
11.10 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11.11 Neither party will issue any press release, SEC filings, prospectus or any
other public announcement relating to this Agreement or its terms without
obtaining the other party's prior written approval which approval will not
be unreasonably withheld or delayed, provided that both parties allow
disclosure of information to
<PAGE>
Page 22 of 26
comply with the country, state and local laws and regulations in the
Territory. The term "press release", as used herein, includes follow-up
correspondence, press kits, and the like which may be provided in response
to inquiries from the media or others.
11.12 BTG shall be deemed an independent contractor of Medi-Ject and, as such,
BTG shall not be entitled to any benefits applicable to employees of
Medi-Ject. Nothing contained in this Agreement shall be construed or
implied to create an agency, partnership, or employer and employee
relationship between BTG and Medi-Ject. At no time shall one make
commitments or incur any charges or expenses for or in the name of the
other party except as specifically provided herein.
11.13 Any dispute, controversy or claim arising out of or relating to this
Agreement (hereinafter collectively referred to as "Dispute") shall be
attempted to be settled by the parties, in good faith, by submitting each
such Dispute to appropriate senior management representatives of each
party in an effort to effect a mutually acceptable resolution thereof. In
the event that no mutually acceptable resolution is achieved, then the
parties shall submit the Dispute to arbitration, as set forth in Section
11.14, below.
11.14 Any Dispute relating to, arising out of or in connection with this
Agreement or the performance or non-performance of either party any
permitted assignee thereunder shall be submitted to arbitration under the
Commercial Arbitration Rules and regulations of the American Arbitration
Association.
(a) In connection therewith, three (3) arbitrators shall constitute the
panel of arbitrators.
(b) Each party shall bear its own expenses in connection with any such
arbitration.
(c) The costs and expenses of the arbitration itself shall be borne by
the parties equally unless the determination by the panel of
arbitrators includes an award of costs, in which case expenses shall
be borne in accordance with such award.
(d) The decision and award of the panel of arbitrators shall be final and
conclusive upon the parties, in lieu of all other legal, equitable or
judicial proceedings between them, and no appeal or judicial review
of the award or decision of the panel of arbitrators shall be taken,
but rather any such
<PAGE>
Page 23 of 26
award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is
sought.
(e) The place of arbitration shall be Philadelphia, Pennsylvania.
(f) The arbitration shall be conducted in the English language.
ARTICLE 12 -- FIRST AGREEMENT
-----------------------------
12.1 The First Agreement is terminated as of the Effective Date and this
Agreement substituted therefor. The parties agree and acknowledge that
each and every dispute, controversy or claim which did arise or could have
arisen out of or relating to the First Agreement is extinguished and
resolved and settled as of the Effective Date and that neither party has,
had or shall have any obligation or liability to the other with respect to
any such dispute, controversy or claim.
The parties intending to be bound hereby have caused this Agreement to be signed
by their duly-authorized representatives as of the Effective Date.
BIO-TECHNOLOGY GENERAL CORP. MEDI-JECT CORPORATION
By: /s/ S. Fass By: /s/ Franklis Pass
------------------------------ -------------------------------
Name: S. Fass Name: Franklin Pass
---------------------------- -----------------------------
Title: CEO Title: Chairman & CEO
--------------------------- ----------------------------
<PAGE>
Page 24 of 26
APPENDIX A - DEVICE
MJ7 Product Description
The MJ7 is a needle-free drug delivery system composed of a power pack, a
needle-free syringe assembly, an adapter assembly for drawing drug from a
traditional glass vial and an adapter cap to serve as a container closure for
the drug vial. The power pack is reusable and is connected with the needle-free
syringe when injecting or aspirating drug. The device is hand-held and spring
powered. The delivered dose can be varied by the user up to the maximum of 0.5
ml in 0.01 ml increments. The needle-free syringe, adapter assembly and adapter
cap are the only drug or injection site contacting materials, and these parts
and assemblies are provided to the end user as sterile. The device is readied
for use, or armed, by manually compressing a spring using a rotating or twisting
motion. A similar but opposite twisting motion is used to dose the needle-free
syringe when it is attached to the power pack. The drug to be delivered is
injected by holding the device against the injection site with slight pressure
and in a fashion that the needle-free syringe is in intimate contact with the
injection site. Pushing a button which releases the energy stored in the spring
triggers the injection. This device includes a safety mechanism that prevents
inadvertent firing of the device. The safety is automatically set in the "safe"
or non-firing mode when the device is armed. The safety prevents device
actuation by preventing the button from being pushed. The device is primarily
cylindrical in shape with a maximum diameter of approximately 1-inch. The length
of the device is approximately 6 inches when the spring is fully compressed and
the needle-free syringe is not attached. The device is approximately 7 3/4
inches when the device is fully extended at a dosage setting of 0.5 ml and the
needle-free syringe is attached. The weight of the device is approximately 1/3
lbs. (135 grams) without the disposable components.
[PICTURE OF MJ7]
<PAGE>
Page 25 of 26
APPENDIX B - PATENTS
U. S. PATENTS - ISSUED
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
U. S. Patent No. Name Inventor(s) Date of Patent
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
<S> <C> <C> <C>
4,507,113 HYPODERMIC JET INJECTOR DUNLAP, KENNETH W. MARCH 26, 1985
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
Des.304,616 MEDICAMENT INJECTOR DUNLAP, KENNETH W.; BARDWELL, DAVID NOVEMBER 14, 1989
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,062,830 DRY DISPOSABLE NOZZLE ASSEMBLY FOR DUNLAP, KENNETH W. NOVEMBER 5, 1991
MEDICAL JET INJECTOR
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,697,917 NOZZLE ASSEMBLY WITH ADJUSTABLE SADOWSKI, PETER L.; SCHIFF, DAVID; DECEMBER 16, 1997
PLUNGER TRAVEL GAP MULHAUSER, PAUL
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,722,953 NOZZLE ASSEMBLY FOR INJECTION DEVICE SCHIFF, DAVID; MULHAUSER, PAUL MARCH 3, 1998
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,769,138 NOZZLE AND ADAPTER FOR LOADING SADOWSKI, PETER L.; NELSON, JUNE 23, 1998
MEDICAMENT INTO AN INJECTOR SHELDON; SCHIFF, DAVID; STOECKMANN,
WALTER
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,800,388 PLUNGER/RAM ASSEMBLY ADAPTED FOR A SCHIFF, DAVID; MULHAUSER, PAUL SEPTEMBER 1, 1998
FLUID INJECTOR
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,836,911 INJECTION DEVICE HAVING POSITIONING MARZYNSKI, MATTHEW; MULHAUSER, NOVEMBER 17, 1998
MEANS PAUL; SCHIFF, DAVE
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,846,233 COUPLING DEVICE FOR MEDICAL INJECTION LILLEY, STEPHEN J.; TAYLOR, HUGH DECEMBER 8, 1998
SYSTEM F.; THEOBALD, DAVID R.; CARLSON,
CRAIG J.; ROSEN, DAVID I.; JOHNSON,
THOMAS R.
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,865,795 SAFETY MECHANISM FOR INJECTION DEVICES SCHIFF, DAVID; MULHAUSER, PAUL FEBRUARY 2, 1999
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
5,891,085 NOZZLE ASSEMBLY WITH LOST MOTION LILLEY, STEPHEN J.; TAYLOR, HUGH APRIL 6, 1999
CONNECTION FOR MEDICAL INJECTOR F.; THEOBALD, DAVID R.; CARLSON,
ASSEMBLY CRAIG J.; ROSEN, DAVID I.; JOHNSON,
THOMAS R.
- --------------------------- --------------------------------------- -------------------------------------- -------------------------
</TABLE>
<PAGE>
Page 26 of 26
U. S. PATENTS - ISSUED (Continued)
<TABLE>
<CAPTION>
- -------------------------- ------------------------------------------- ------------------------------------- -----------------------
U. S. Patent No. Name Inventor(s) Date of Patent
- -------------------------- ------------------------------------------- ------------------------------------- -----------------------
<S> <C> <C> <C>
5,921,967 PLUNGER FOR NOZZLE ASSEMBLY SADOWSKI, PETER L.; SCHIFF, DAVID; JULY, 13, 1999
STOECKMANN, WALTER; MULHAUSER, PAUL
- -------------------------- ------------------------------------------- ------------------------------------- -----------------------
5,875,976 LOCKING MECHANISM FOR NOZZLE ASSEMBLY NELSON, SHELDON; SCHIFF, DAVID; MARCH 2, 1999
STOECKMANN, WALTER
- -------------------------- ------------------------------------------- ------------------------------------- -----------------------
</TABLE>
APPLICATIONS - FILED
<TABLE>
<CAPTION>
- -------------------------- ------------------------------------------------ ----------------------------------- --------------------
Application No. Name Inventor(s) Reference No.
- -------------------------- ------------------------------------------------ ----------------------------------- --------------------
<S> <C> <C> <C>
60/094,163 LOADING MECHANISM FOR MEDICAL INJECTOR ASSEMBLY DEBOER, DAVID M.; LESCH, JR. PAUL 8066-047
R.; NELSON, SHELDON J.
- -------------------------- ------------------------------------------------ ----------------------------------- --------------------
60/094,167 INJECTION-ASSISTING PROBE FOR MEDICAL INJECTOR DEBOER, DAVID M.; SADOWSKI, PETER 8066-048
ASSEMBLY L.; LESCH, PAUL R.; BERMAN,
CLAUDE L.; GIAMBATTISTA, LUCIO
- -------------------------- ------------------------------------------------ ----------------------------------- --------------------
</TABLE>
<PAGE>
EXHIBIT 10.5
PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement is made and entered into as of the
22nd day of December, 1999, between Medi-Ject Corporation, a Minnesota
corporation (the "Company"), and Bio-Technology General Corp., a Delaware
corporation ("Investor").
For good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged by the Company and the Investor, the Company and the
Investor agree as follows:
1. Sale and Purchase of Securities. Subject to the terms and conditions
hereof, the Company agrees to sell to the Investor at the Closing (as defined
herein), and the Investor agrees to purchase from the Company at the Closing,
250 shares of the Company's Series B Convertible Preferred Stock (the "Preferred
Stock") with the rights and preferences provided in the Certificate of
Designation for such Preferred Stock attached hereto as Exhibit A (the
"Certificate of Designation"). The purchase price per share is $1,000. The
Preferred Stock is sometimes referred to herein as the "Securities."
2. Closing. The closing of the purchase and sale of the Securities
hereunder shall take place at the offices of the Company, Minneapolis,
Minnesota, at 10:00 a.m., Minneapolis time, on December 22, 1999 or at such
other place(s) or different time(s) or day(s) as the Company in its discretion
shall determine (the "Closing"). At the Closing, the Company will deliver to the
Investor a certificate representing the number of shares of Preferred Stock and
the Investor shall cause to be delivered to the Company a wire transfer or check
payable to the Company in the amount of $250,000.
3. Representations and Warranties by the Company. To induce the Investor to
enter into this Agreement and to purchase the Securities, the Company hereby
represents and warrants to the Investor as follows:
(a) Disclosure. The Company has provided the Investor with all the
information the Investor has requested in deciding whether to purchase the
Securities and certain additional information, including, the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, the
Company's Quarterly Reports on Form 10-Q for each of the first three
quarters of 1999, the Company's Proxy Statement for its 1999 Annual Meeting
of Shareholders, all other filings made by the Company with the Securities
and Exchange Commission and the Company's 1999 press releases (the
"Disclosed Information"). None of the Disclosed Information as of its date
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(b) Organization, Good Standing, Etc. The Company is duly incorporated
and validly existing as a corporation in good standing under the laws of
the State of Minnesota, with power and authority to own its properties and
conduct its business as now conducted and proposed to be conducted.
<PAGE>
(c) Authorization and Enforceability. The Company has full legal
power, right and authority to adopt the Certificate of Designation and to
enter into this Agreement and the Registration Rights Agreement among the
Company and the Investor, the form of which is attached hereto as Exhibit B
(the "Registration Rights Agreement") and to issue the Securities and to
carry out and perform its obligations under this Agreement and the
Registration Rights Agreement. This Agreement, the Certificate of
Designation and the Registration Rights Agreement have been duly
authorized, executed and delivered on behalf of the Company and are the
valid and binding obligations of the Company, enforceable in accordance
with their respective terms and subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the rights of creditors generally, to the exercise of judicial discretion
as to the availability of equitable remedies such as specific performance
and injunction and, as to enforcement of the indemnification provisions, to
limitations under applicable securities laws.
(d) Defaults. The adoption of the Certificate of Designation and the
execution of this Agreement and the Registration Rights Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in any breach of, any of the terms or conditions
of, or constitute a default or violation under, (i) the Articles of
Incorporation, as amended, or Bylaws, as amended, of the Company, (ii) any
indenture, agreement or other instrument to which the Company is now a
party, or (iii) any law or any order, rule or regulation applicable to the
Company of any court or of any federal or state regulatory body or
administrative agency having jurisdiction over the Company or its property.
(e) Valid Issuance of Preferred Stock. The Preferred Stock, when
authorized, issued, sold and delivered in accordance with the terms hereof
will be duly authorized, validly issued, fully paid and nonassessable. The
issuance, sale and delivery of the Preferred Stock and the issuance of the
Common Stock upon conversion of the Preferred Stock is not subject to any
pre-emptive right, right of first refusal or similar right that has not
been waived.
(f) Approvals. The adoption of the Certificate of Designation and the
execution and delivery of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby will not require the consent, approval, order or authorization of
any governmental entity or any other person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to
which the Company is a party or to which any of its properties are subject,
and no declaration, filing or registration with any governmental entity is
required or advisable by the Company in connection with the adoption of the
Certificate of Designation and the execution and delivery of this Agreement
and the Registration Rights Agreement, the consummation of the transactions
contemplated hereby and thereby, or the performance by the Company of its
respective obligations hereunder and thereunder, other than the filing of
the Certificate of Designation with the Secretary of State of Minnesota,
which filing will occur prior to Closing, filings which may be required
under state blue sky laws, and, with respect to the Registration Rights
Agreement, the registration of the shares covered thereby with the
Securities and Exchange Commission.
2
<PAGE>
(g) Litigation. Other than the current arbitration with the Investor,
there is no action, suit, investigation, arbitration or proceeding pending
or, to the best knowledge of the Company, threatened against or affecting
the Company, or any of its properties or rights (including, without
limitation, no charge of patent and/or trademark infringement), by or
before any governmental entity, or any basis in fact therefor known to the
Company, against or involving the Company or any of its officers, directors
or employees (in their capacity as such), assets, business or products,
whether at law or in equity.
(h) Compliance with Laws. The Company has complied in all material
respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings and charges
thereunder) of any governmental entity relating to or affecting the
operation, conduct or ownership of its property or business, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand
or notice has been filed or commenced or, to the best knowledge of the
Company, threatened against it alleging any failure so to comply.
(i) No Misleading Statements. This Agreement and the Disclosed
Information as a whole do not include any untrue statement of a material
fact and do not omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to the Company
which has a material adverse effect on the business, prospects, results of
operations, financial condition or assets of the Company or in the future
may (so far as the Company can now reasonably foresee) have such a material
adverse effect which has not been disclosed to the Investor in writing.
4. Representations of the Investor. The Investor represents that:
(a) Investment Intent. The Securities being acquired by the Investor
are being purchased for investment for the Investor's own account and not
with the view to, or for resale in connection with, any distribution or
public offering thereof. The Investor understands that the Securities have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws by reason of their
contemplated issuance in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws,
and that the reliance of the Company upon these exemptions is predicated in
part upon this representation by the Investor. The Investor further
understands that the Securities, and the shares of the Company's common
stock issuable upon conversion or exercise thereof, may not be transferred
or resold without (i) registration under the Securities Act and applicable
state securities laws, or (ii) an exemption from the requirements of the
Securities Act and applicable state securities laws.
(b) Location of Principal Office, Qualification as an Accredited
Investor, Etc. The state in which the Investor's principal office is
located is the state set forth in the Investor's address on the signature
page hereof. The Investor is an "accredited investor" as defined in Rule
501 of Regulation D promulgated under the Securities Act. The Investor
acknowledges receipt of the Disclosed Information and that the Company has
made available to the Investor at a
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reasonable time prior to the execution of this Agreement the opportunity to
ask questions and receive answers concerning the business and affairs of
the Company and the terms and conditions of the sale of Securities
contemplated by this Agreement and to obtain any additional information
(which the Company possessed or could acquire without unreasonable effort
or expense) to verify the accuracy of information furnished to the
Investor. The Investor (i) understands that an investment in the Securities
involves a high degree of risk; (ii) is able to bear the loss of the
Investor's entire investment in the Securities without any material adverse
effect on such Investor's business, operations or prospects, and (iii) has
such knowledge and experience in financial and business matters that such
Investor is capable of evaluating the merits and risks of the investment to
be made pursuant to this Agreement.
(c) Acts and Proceedings. This Agreement has been duly authorized by
all necessary action on the part of the Investor, has been duly executed
and delivered by the Investor, and is a valid and binding agreement of the
Investor.
5. Conditions of the Investor's Obligation. The obligation to purchase and
pay for the Securities at the Closing is subject to the fulfillment prior to or
on the Closing date of the conditions set forth in this Section 5.
(a) Representations and Warranties. The representations and warranties
of the Company under this Agreement shall be true on and as of the Closing
date with the same effect as though made on and as of the Closing date.
(b) Compliance with Agreement. The Company shall have performed and
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing date.
(c) File Certificate of Designation. The Company shall have filed the
Certificate of Designation with the Secretary of State of the State of
Minnesota and such certificate shall have been accepted and duly filed by
such Secretary's office.
(d) Execution of Registration Rights Agreement. The Company shall have
executed and delivered to the Investor the Registration Rights Agreement
attached hereto as Exhibit B.
6. Conditions of the Company's Obligations. The obligation of the Company
to sell, transfer and deliver the Securities at the Closing is subject to the
fulfillment prior to or on the Closing date of the conditions set forth in this
Section 6.
(a) Representations and Warranties. The representations and warranties
of the Investor under this Agreement shall be true on and as of the Closing
date with the same effect as though made on and as of the Closing date.
(b) Compliance with Agreement. The Investor shall have performed and
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing date.
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(c) File Certificate of Designation. The Company shall have filed the
Certificate of Designation with the Secretary of State of the State of
Minnesota and such certificate shall have been accepted and duly filed by
such Secretary's office.
7. Company's Covenant. The Company hereby agrees to use its best efforts to
cause the conditions set forth in Section 4(a)(i) and (ii) to the Certificate of
Designation to be fulfilled as promptly as reasonably possible and in no event
later than one year from the date hereof. In the event the Company does not
cause the conditions set forth in Section 4(a)(i) and (ii) to the Certificate of
Designation to be fulfilled by one year from the date hereof, the Company shall
immediately redeem all the Preferred Stock at a price per share equal to 105% of
the Series B Liquidation Preference (as defined in the Certificate of
Designation).
8. Restriction on Transfer of Preferred Stock and Shares.
(a) Legend. Each share of Preferred Stock and each certificate
representing shares of the Company's common stock issued pursuant to the
transactions contemplated hereby shall be endorsed with a legend in
substantially the form which follows:
"The securities represented by this certificate may not be transferred
without (i) the opinion of counsel satisfactory to this corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933, as amended, and all applicable state
securities laws, or (ii) such registration."
9. Miscellaneous.
(a) Changes, Waivers, Etc. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally, but only by
a statement in writing, signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.
(b) Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered,
or mailed first-class postage prepaid, registered or certified mail or
shall be sent by facsimile transmission followed by mailed copy to the
address listed on the signature page hereof and such notices and other
communications shall for all purposes of this Agreement be treated as being
effective or having been given if delivered personally, if sent by mail,
when received, or, if sent by facsimile, upon the sender's receipt of
confirmation from its facsimile machine of transmission.
(c) Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and do not constitute a part of
this Agreement.
(d) Choice of Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Minnesota without
regard to the principles of conflicts of law thereof.
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(e) Counterparts. This Agreement may be executed at different times
and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(f) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not, and, in particular, shall inure to the benefit
of and be enforceable by the holder or holders from time to time of any of
the Securities.
(g) Entire Agreement. This Agreement, including and incorporating all
Exhibits and Schedules hereto, constitutes and contains the entire
agreement and understanding of the parties regarding the subject matter of
this Agreement and supersedes any and all prior negotiations,
correspondence, understandings and agreements, written or oral, among the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed personally or by their duly authorized representatives as of the date
indicated above.
MEDI-JECT CORPORATION
By: /s/ Franklin Pass
-------------------------------------
Franklin Pass, its President
Address: 161 Cheshire Ln. #100
--------------------------------
Minneapolis, MN 55441
--------------------------------
--------------------------------
INVESTOR:
BIO-TECHNOLOGY GENERAL CORP.
By: /s/ S. Fass
-------------------------------------
Its: CEO
------------------------------------
Address: 70 Wood Ave. S.
--------------------------------
Iselin, NJ 08830
--------------------------------
--------------------------------
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<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
MEDI-JECT CORPORATION
The undersigned officers of Medi-Ject Corporation, a corporation organized
and existing under the Minnesota Business Corporation Act (the "Corporation"),
do hereby certify that, pursuant to authority conferred by the Second Amended
and Restated Articles of Incorporation of the Corporation, as amended (the
"Articles of Incorporation"), and pursuant to the provisions of Section 302A.401
of the Minnesota Business Corporation Act, the Board of Directors of the
Corporation adopted a resolution adopting a Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock (this
"Certificate of Designations") providing for certain designations, powers,
number, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of 250
shares of Series B Convertible Preferred Stock, $.01 par value per share, which
resolution is as follows:
RESOLVED: That pursuant to Article 3 of the Second Amended and Restated
Articles of Incorporation, as amended, of this Corporation, the Board of
Directors hereby establishes the following series of Preferred Stock, $.01 par
value per share (the "Series B Preferred Stock"), of the Corporation having the
designations, powers, number, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereof set forth below:
1. Designation. 250 shares of the Series B Preferred Stock shall be
designated and known as the "Series B Convertible Preferred Stock."
2. Dividend Provisions.
a. The Series B Convertible Preferred Stock will not accrue a
dividend. Dividends will be payable only if, as and when determined by the
Corporation's Board of Directors.
b. Notwithstanding anything contained in this Certificate of
Designations to the contrary, so long as any shares of Series B Convertible
Preferred Stock remain outstanding, (i) no dividends shall be declared or
payable with respect to any outstanding shares of Common Stock of the
Corporation or shares of any other class of shares of the Corporation,
except for the Series A Convertible Preferred Stock; and (ii) except for
repurchases or redemptions made in good faith by the Corporation in
consideration for the exercise of options issued under the Corporation's
stock option plans existing on the date hereof and except for redemptions
of Series A Convertible Preferred Stock, the Corporation shall not redeem,
repurchase or otherwise
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acquire shares of Common Stock of the Corporation or shares of any other
class of shares of the Corporation.
3. Liquidation Preference.
a. Subject to the rights of the holders of Series A Convertible
Preferred Stock, in the event of any liquidation, dissolution or winding-up
of the affairs of the Corporation, whether voluntary or involuntary
(collectively, a "Liquidation"), before any payment of cash or distribution
of other property shall be made to the holders of the Common Stock (the
"Common Shareholders") or any other class or series of stock subordinate in
Liquidation Preference to the Series B Convertible Preferred Stock, the
holders of the Series B Convertible Preferred Stock shall be entitled to
receive out of the assets of the Corporation legally available for
distribution to its shareholders, the Original Purchase Price per share (as
appropriately adjusted for any combinations or divisions or similar
recapitalizations affecting the Series B Convertible Preferred Stock after
issuance) plus any declared and unpaid dividends thereon (the "Series B
Liquidation Preference"). As used herein, the "Original Purchase Price" is
$1,000 per share.
b. If, upon any Liquidation, the assets of the Corporation available
for distribution to its shareholders shall be insufficient to pay the
holders of the Series B Convertible Preferred Stock the full amounts to
which they shall be entitled, subject to the rights of the holders of the
Series A Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock shall share ratably in any distribution of
assets in proportion to the respective amounts which would be payable to
them in respect of the shares held by them if all amounts payable to them
in respect of such were paid in full pursuant to subsection 3(a), above.
c. After the distributions described in subsection (a), above, have
been paid, the holders of the Series B Convertible Preferred Stock shall
not be entitled to any further participation in any distribution of assets
of the Corporation.
d. For purposes of this Section 3:
(i) a liquidation, dissolution or winding up of the Corporation
shall be deemed to be occasioned by, or to include,
(A) the acquisition of the Corporation by another entity by
means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or
consolidation but, excluding any merger effected exclusively for
the purpose of changing the domicile of the Corporation); except,
if (i) the Corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately
after such acquisition (by virtue of securities issued as
consideration for the Corporation's acquisition) hold at least
50% of the voting power of the surviving or acquiring entity or
(ii) if a majority in interest of the Series B Convertible Series
B Preferred Stock, voting as a class, shall have approved such
reorganization, merger or consolidation; or
(B) a sale of all or substantially all of the assets of the
Corporation.
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(ii) Upon the occurrence of any of the events described in the
foregoing subsection (3)(d)(i), if the consideration received by the
Corporation is other than cash, its value will be deemed its fair
market value, which shall be valued as follows:
(A) if traded on a securities exchange or through Nasdaq,
the average of the closing sale prices of the securities on such
exchange for the 20 consecutive trading days ending with the day
which is two trading days prior to the closing of such
transaction (the "Market Price");
(B) if actively traded over-the-counter, the average of the
closing bid or sale prices (whichever is applicable) over the 30
day period ending three days prior to the closing; or
(C) if there is no active public market, the fair market
value thereof, as mutually determined by the Corporation and the
holders of at least a majority of the voting power of all then
outstanding shares of Series A Convertible Preferred Stock.
The method of valuation of securities subject to restrictions on free
marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to
make an appropriate discount from the market value determined as above
in (ii), (A), (B) or (C) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of
at least a majority of the then outstanding shares of the Series B
Convertible Preferred Stock.
(iii) In the event the requirements of this subsection 3(d) are
not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B
Convertible Preferred Stock shall revert to and be the same as
such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection
3(e) below.
e. The Corporation shall give each holder of record of Series B
Convertible Preferred Stock written notice of any impending transaction
described under subsection 3(d)(i) above, not later than 20 days prior to
the shareholders' meeting called to approve such transaction, or 20 days
prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this
Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take
place sooner than 20 days after the Corporation has given the first notice
provided for herein or sooner than 10 days after the Corporation has given
notice of any material changes provided for herein; provided, however,
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that such periods may be shortened upon the written consent of the holders
of Series B Convertible Preferred Stock that are entitled to such notice
rights or similar notice rights and that represent at least a majority of
the then outstanding shares of Series B Convertible Preferred Stock.
4. Conversion.
a. Optional Conversion. Each share of Series B Convertible Preferred
Stock shall at the option of the holder be convertible into fully paid and
nonassessable shares of Common Stock at any time after the date that all of
the following have occurred: (i) the Corporation has filed an amendment to
its Articles of Incorporation increasing the authorized Common Stock from
3,400,000 shares to at least 10,000,000 shares (the "Amendment"); and (ii)
the Corporation has obtained any necessary approvals under the Nasdaq
listing requirements. The events described in paragraphs (i) and (ii) above
are referred to herein as the "Permissible Conversion Events." All
outstanding shares of Series B Convertible Preferred Stock shall convert
into shares of Common Stock at the Conversion Price in effect on the date
the holder gives written notice of conversion and delivers certificates
representing the shares to be so converted (the "Optional Conversion
Date"), provided that if NASDAQ Rule 4460(I)(1)(d)(ii) would prevent
conversion in full without stockholder approval, then the holder shall only
be entitled to convert to the extent permitted by such rule and the
Corporation shall obtain any requisite stockholder approval necessary to
allow such conversion.
b. Automatic Conversion. Each share of Series B Convertible Preferred
Stock shall automatically convert into fully paid and nonassessable shares
of Common Stock on the later of (i) the date of the occurrence of the
Permissible Conversion Events; or (ii) June 30, 2001 (such later date
referred to herein as the "Automatic Conversion Date"), provided that if
NASDAQ Rule 4460(I)(1)(d)(ii) would prevent conversion in full without
stockholder approval, then the automatic conversion shall occur to the
extent permitted by such rule and the Corporation shall obtain any
requisite stockholder approval necessary to allow such conversion in full.
c. The number of shares of Common Stock to be issued upon a conversion
under this Section 4 shall be determined by valuing each issued and
outstanding share of Series B Convertible Preferred Stock at the Series B
Liquidation Preference and converting such share into such number of shares
of Common Stock as may be acquired at such value where each share of Common
Stock is valued at the conversion price applicable to such share (the
"Conversion Price"), determined as hereafter provided, in effect on the
Optional Conversion Date, with respect to an optional conversion, and the
Automatic Conversion Date, with respect to an automatic conversion. The
Conversion Price per share of Common Stock on any day for purposes of a
conversion under this Section 4 shall be equal to the lesser of (i) the
average of the closing prices per share of the Corporation's Common Stock
for the twenty (20) consecutive trading days immediately preceding the
Optional Conversion Date, with respect to an optional conversion, and the
Automatic Conversion Date, with respect to an automatic conversion, or (ii)
$2.50 per share (subject to adjustment for stock splits, stock dividends
and similar actions). Upon conversion pursuant to this Section 4, holders
of Series B Convertible Preferred Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
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of any transfer agent for the Series B Convertible Preferred Stock and
shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder of Series B Convertible Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the Optional Conversion Date, with respect to an
optional conversion, and the Automatic Conversion Date, with respect to an
automatic conversion, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
as of such date.
5. Redemption. The Corporation shall have the right, at any time after the
occurrence of both Permissible Conversion Events and prior to the conversion of
such shares into shares of Common Stock as provided in Section 4 above, to
redeem any or all of the issued and outstanding shares of Series B Convertible
Preferred Stock for cash at a price per share equal to the Series B Liquidation
Preference. The Corporation shall give the holder not less than 30 days and not
more than 60 days prior notice of such redemption, and the holder shall be
entitled to convert any or all of the shares of Series B Convertible Preferred
Stock prior to the date of redemption.
6. Other Distributions. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons or assets (excluding cash dividends),
then, in each such case for the purpose of this Section 6, the holders of the
Series B Convertible Preferred Stock shall be entitled, upon conversion of the
Series B Convertible Preferred Stock, to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series B Convertible
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
7. Recapitalization. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in Section 3 or
Section 4) provision shall be made so that the holders of the Series B
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series B Convertible Preferred Stock the number of shares of
stock or other securities or property of the Corporation or otherwise, to which
a holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of Section 4 with respect to the rights of the
holders of the Series B Convertible Preferred Stock after the recapitalization
to the end that the provisions of Section 4 shall be applicable after that event
as nearly equivalent as may be practicable.
8. No Impairment. The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to
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avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of Section 4 and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series B Convertible Preferred Stock
against impairment.
9. No Fractional Common Shares and Certificate as to Adjustments. No
fractional shares of Common Stock shall be issued upon the conversion of any
share or shares of the Series B Convertible Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole share.
10. Notices. Any notice required by the provisions hereof to be given to
the holders of shares of Series B Convertible Preferred Stock shall be deemed
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of services via telecopy to the party to
whom notice is to be given and five (5) days after mailing if mailed by first-
class mail to the address of the holder appearing on the books of the
Corporation.
11. Voting Rights.
a. Unless otherwise required by law, holders of Series B Convertible
Preferred Stock will not be entitled to vote on any matter; provided,
however, that the Corporation shall take no action that would adversely
affect the holders of Series B Convertible Preferred Stock relative to the
holders of any other class of the Corporation's securities (including,
without limitation, by issuing any securities having a liquidation or
dividend preference senior to, or pari passu with, the Series B Convertible
Preferred Stock) without the prior approval of the holders of a majority of
such Series B Convertible Preferred Stock voting as a separate class
pursuant to subsection b of this Section 11.
b. In any vote by the holders of the Series B Convertible Preferred
Stock acting as a class, each holder of Series B Convertible Preferred
Stock shall be entitled to one vote for each share of Series B Convertible
Preferred Stock.
12. Status of Converted or Redeemed Stock. In the event any shares of
Series B Convertible Preferred Stock shall be converted pursuant to Section 4
hereof or redeemed pursuant to Section 5 hereof, the shares so converted or
redeemed shall be canceled and shall not be reissuable by the Corporation.
13. Amendment. Notwithstanding anything contained herein to the contrary,
any provision of this Certificate of Designations may be modified or waived with
the consent of the Company and the holders of a majority in interest of the
Series B Convertible Preferred Stock.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights to be duly executed to this 30th day of
December, 1999.
MEDI-JECT CORPORATION
By: /s/ Franklin Pass
-------------------------------------
Name: Franklin Pass
-----------------------------------
Title: Chairman
----------------------------------
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is made and entered into as of the
22nd day of December, 1999, by and among Medi-Ject Corporation, a Minnesota
corporation (the "Company") and Bio-Technology General Corp., a Delaware
corporation (the "Investor").
RECITALS
A. The Investor and the Company have entered into that certain Preferred
Stock Purchase Agreement, dated December 22, 1999 (the "Purchase Agreement").
B. It is a condition to the transactions contemplated in the Purchase
Agreement that the Company provide the registration rights provided herein and
the parties hereto desire to provide for such rights on the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise noted, all capitalized terms used herein
shall have the meanings afforded them in the Purchase Agreement.
2. Registration Rights. The Company covenants and agrees as follows:
2.1 Demand Registration. At any time beginning one year from the date
hereof, on one occasion only, upon request by at least 50% of the
registered holders of common stock acquired upon conversion of the
Preferred Stock (such shares of common stock referred to herein as the
"Registrable Stock"), the Company will promptly take all necessary steps to
register or qualify the sale of such shares by the holders thereof on the
applicable registration statement form under the Securities Act of 1933 and
such state laws as such holders may reasonably request; provided, however,
that (i) the Company shall not be required to include any such shares of
Common Stock in any such registration for any holder who is able to sell
all shares of Common Stock owned by such holder during the three-month
period beginning on the date such registration is requested by such holder,
without compliance with the registration requirements of the Securities Act
pursuant to Rule 144(k) under the Securities Act; and (ii) the Company may,
on not more than one occasion, delay the filing of any registration
statement requested pursuant to this Section 2.1 to a date not more than 90
days following the date of such request if in the reasonable opinion of the
Company at the time of such request such a delay is necessary in order not
to significantly adversely affect financing efforts then underway at the
Company. The costs and expenses directly related to any registration
requested pursuant to this section, including but not limited to legal fees
of the Company's counsel, audit fees, printing expense, filing fees and
fees and expenses relating to qualifications under state securities or blue
sky laws incurred by the Company shall be borne entirely by the Company;
provided, however, that the persons for whose account the securities
covered by such registration are sold shall bear the underwriting
commissions applicable to their
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shares and fees of their legal counsel. If the holders of Registrable Stock
are the only persons whose shares are included in the registration pursuant
to this section, such holders shall bear the expense of inclusion of
audited financial statements in the registration statement which are not
dated as of the Company's normal fiscal year or are not otherwise prepared
by the Company for its own business purposes. The Company shall keep
effective and maintain any registration, qualification, notification or
approval specified in this paragraph for such period as may be necessary
for the holders to dispose of such securities (not to exceed 180 days) and,
from time to time shall amend or supplement, at the holder's expense, the
prospectus or offering circular used in connection therewith to the extent
necessary in order to comply with applicable law. The managing underwriter
of an offering registered pursuant to this Section 2.1, if any, shall be
selected by the holders of a majority of the Registrable Stock for which
registration has been requested and shall be reasonably acceptable to the
Company. Without the written consent of the holders of a majority of the
Registrable Stock for which registration has been requested pursuant to
this Section 2.1, neither the Company nor any other holder of securities of
the Company may include securities in such registration if in the good
faith judgment of the managing underwriter of such public offering the
inclusion of such securities would interfere with the successful marketing
of the Registrable Stock.
2.2 Registration--General Provisions. In connection with the
registration of the Registrable Stock under the Securities Act, the Company
will:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective as soon as possible after
the date it is filed and keep the prospectus which is a part of such
registration statement current until the earlier of the date on which:
(i) all such shares have been sold, or (ii) 180 days after the date it
is declared effective by the Commission (the "Effectiveness Period");
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for the Effectiveness Period referred to in Section 2.2(a)
above;
(c) at the request of the Investor, provide the Investor's
counsel (referred to herein as "Investor's Counsel") with reasonable
opportunities to review and comment on, and otherwise participate in,
the preparation of such registration statement;
(d) furnish to the Investor participating in such registration
and to the underwriters of the securities being registered, if any,
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
the Investor and underwriters may reasonably request in order to
facilitate the public offering of such securities;
(e) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as the Investor may reasonably
request in writing within 30 days following the original filing of
such
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registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process
(which shall not include a "Uniform Consent to Service of Process" or
other similar consent to service of process which relates only to
actions or proceedings arising out of or in connection with the sale
of securities, or out of a violation of the laws of the jurisdiction
requesting such consent) or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(f) notify the Investor, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed with the Commission;
(h) notify the Investor promptly of any request by the Commission
for the amending or supplementing of such registration statement or
prospectus or for additional information;
(i) provide Investor with customary opinions and accountants cold
comfort letter;
(h) prepare and file with the Commission, promptly upon the
request of the Investor, any amendments or supplements to such
registration statement or prospectus which, in the opinion of
Investor's Counsel, if any (and concurred in by counsel for the
Company), is required under the Securities Act or the rules and
regulations promulgated thereunder in connection with the distribution
of the shares of the Company's common stock by the Investor;
(i) prepare and promptly file with the Commission and promptly
notify the Investor of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(j) advise the Investor, and the Investor's Counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(k) Notwithstanding the foregoing, following the effectiveness of
such registration statement, the Company may, at any time, suspend the
effectiveness of such registration statement for up to no longer than
ninety (90) days, as appropriate (a "Suspension Period"), by giving
notice to the Investor, if (i) the Company, with the advice of its
counsel, shall have determined that the Company may be required to
disclose any material corporate development or (ii) the Company shall
be involved in an underwritten public offering of its
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securities. The Company will use its best efforts to minimize the
length of any Suspension Period. Further, no more than one 90-day
Suspension Period or multiple Suspension Periods which do not exceed
90 days in the aggregate may occur in any 12-month period and the
Effectiveness Period referred to in Section 2.2(a) shall be extended
by the number of days such registration is subject to any Suspension
Period. The Investor agrees that, upon receipt of any notice from the
Company of a Suspension Period, it will not sell (subject to the
limitations on the Company set forth above) any Registrable Stock
pursuant to such registration statement until (i) such Investor is
advised in writing by the Company that the use of the applicable
prospectus may be resumed, (ii) the Investor has received copies of
any additional or supplemental or amended prospectus, if applicable,
and (iii) the Investor has received copies of any additional or
supplemental filings which are incorporated or deemed to be
incorporated by reference in such prospectus.
2.3 Registration Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with the inclusion of shares of
the Company's common stock in any registration statement, or application to
register or qualify such shares under state securities laws, filed by the
Company hereunder, other than as set forth herein. For purposes of this
Agreement, the term "Registration Expenses" means the filing fees payable
to the Commission, any state agency and the NASD; the fees and expenses of
the Company's legal counsel and independent certified public accountants in
connection with the preparation and filing of the registration statement
(and all amendments and supplements thereto) with the Commission; and all
expenses relating to the printing of the registration statement,
prospectuses and various agreements executed in connection with the
registration statement. Notwithstanding the foregoing, the Investor will
pay the fees and expenses of any legal counsel the Investor may engage, as
well as the Investor's share of any custodian fees or commission or
discounts or transfer taxes which may be payable to any underwriter and any
other expenses incurred by the Investor not expressly included herein.
3. Indemnification; Contribution.
(a) To the extent permitted by law, the Company will indemnify the
Investor, each of its officers, directors, members and partners, and each
person controlling such Investor, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
each director and controlling person of the Company and each officer of the
Company who signed the registration statement, and each underwriter, if
any, and each person who controls any underwriter, against all claims,
losses, damages and liabilities (or actions, proceedings or settlements, if
such settlements are effected with the written consent of the Company, in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification of the like) incident to any such registration,
qualification or compliance, or any omission (or alleged omission) to state
therein a material fact required to be sated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
the Securities Act or the Exchange Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of
the Company in connection with any such registration, qualification or
compliance,
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<PAGE>
and will reimburse the Investor, each of its officers, directors, members
and partners, and each person controlling such Investor, each such
director, controlling person and officer, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending
or settling any such claim, loss, damage, liability, action or proceeding;
provided, however, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Investor or underwriter and stated to be specifically for
use therein.
(b) To the extent permitted by law, the Investor will indemnify the
Company, each director, officer and controlling person of the Company and
each officer of the Company who signed the registration statement, and each
underwriter, if any, and each person who controls any underwriter, against
all claims, losses, damages and liabilities (or actions, proceedings or
settlements, if such settlements are effected with the written consent of
the Investor, in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document in which the Investor's
shares are included (including any related registration statement,
notification of the like) incident to any such registration, qualification
or compliance, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in each case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such
Investor and stated to be specifically for use therein, or any violation by
the Investor of the Securities Act or the Exchange Act or any rule or
regulation thereunder applicable to the Investor and relating to action or
inaction required of the Investor in connection with any such registration,
qualification or compliance, and will reimburse the Company, each of its
officers, directors, and each person controlling the Company, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage,
liability, action or proceeding.
(c) The party entitled to indemnification under this Section 3 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure to notify materially
adversely affects the Indemnifying Party's ability to defend such
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<PAGE>
action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect of such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 3 shall for
any reason be unenforceable by an Indemnified Party, although otherwise
available in accordance with its terms, then each Indemnifying Party shall,
in lieu of indemnifying such Indemnified Party, contribute to the amount
paid or payable by such Indemnified Party as a result of the losses,
claims, damages, liabilities or expenses with respect to which such
Indemnified Party has claimed indemnification, in such proportion as is
appropriate to reflect the relative fault of the Indemnified Party on the
one hand and the Indemnifying Party on the other in connection with the
statement or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined
by, among other things, whether such statement, alleged statement, omission
or alleged omission relates to information supplied by the Indemnifying
Party or the Indemnified Party, and such parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and
Investor agree that it would not be just and equitable if contribution
pursuant hereto were to be determined by pro rata allocation or by any
other method of allocation which does not take into account such equitable
consideration. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages, liabilities or expenses referred to
herein shall be deemed to include any legal or other expense reasonably
incurred by such Indemnified Party in connection with investigating or
defending against any action or claim which is the subject hereof. In no
case, however, shall Investor be responsible for a portion of the
contribution obligation in excess of the net proceeds to such Investor of
securities sold as contemplated herein. No person guilty of fraudulent
misrepresentation (within the meaning of Section11(f) of the Securities
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(e) Anything to the contrary contained in this Section 3
notwithstanding, no Investor shall be liable for any indemnification or
contribution in excess of the net proceeds received by it from any sale of
Registrable Stock which has been registered hereunder.
4. Miscellaneous.
(a) Except as otherwise provided herein, the provisions of this
Agreement may not be amended, modified or supplemented, and waivers or
consents to or departures from the provisions hereof may not be given or
made unless the Company has obtained the written consent of the Investor.
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<PAGE>
(b) All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, telex, facsimile, overnight
courier or registered first-class mail to the address of the party set
forth on the signature page. All such notices and communications shall be
deemed to have been duly given: when delivered, if by hand, overnight
courier or mail; when the appropriate answer back is received, if by telex;
when transmission is confirmed by the sending unit, if by facsimile.
(c) This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
(d) The headings to this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Minnesota without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
above.
MEDI-JECT CORPORATION
By: /s/ Franklin Pass
-------------------------------------
Its: Chairman & CEO
------------------------------------
Address: 161 Cheshire Ln. #100
--------------------------------
Minneapolis, MN 55441
--------------------------------
--------------------------------
BIO-TECHNOLOGY GENERAL CORP.
By: /s/ S. Fass
-------------------------------------
Its: CEO
------------------------------------
Address: 70 Wood Ave. S.
--------------------------------
Iselin, NJ 08830
--------------------------------
--------------------------------
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<PAGE>
EXHIBIT 10.8.1
MEDI-JECT CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company"), and Franklin Pass, an
individual resident of Hennepin County in the State of Minnesota ("Executive").
WHEREAS, the Company wishes to employ Executive to render services for the
Company on the terms and conditions set forth in this Agreement, and Executive
wishes to be retained and employed by the Company on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive accepts
such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. Term. Unless terminated at an earlier date in accordance with Section 9 of
this Agreement, the term of Executive's employment hereunder shall be for a
period commencing on the date of this Agreement and continuing as set forth
in the Term and Compensation Addendum applicable to each year.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement, Executive
agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. As of
the date of this Agreement, Executive has been elected to serve as
Chairman and Chief Executive Officer.
3.02 Performance of Duties. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company
during the term of this Agreement. Executive hereby confirms that,
other than as set forth herein, he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and
that for the term of this Agreement, he will not render or perform
services for any other corporation, firm, entity or person that are
inconsistent with the provisions of this Agreement.
4. Compensation.
4.01 Salary. As compensation in full for services to be rendered by the
Executive under this Agreement and as amended annually by the Term and
Compensation Addendum, the Company shall pay to Executive a base
annual salary set at $210,000 as of
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Medi-Ject Corporation
Employment Agreement
Page 2 of 9
January 1, 1997, which salary shall be paid in accordance with the
Company's normal payroll procedures and policies. The compensation
payable to Executive during each year subsequent to 1997 during the
term of this Agreement shall be mutually agreed upon by the Company
and Executive prior to the commencement of each such year but shall
not be less than $210,000 multiplied by a fraction, the denominator of
which is the consumer price index (CPI) in effect on January 1, 1997,
and the numeration of which is the CPI of each year. As used herein,
CPI refers to the Consumer Price Index, All Items, U.S. Cities Average
(base year 1982-1984) published by the Bureau of Labor Statistics.
4.02 Participation in Benefit Plans. Executive shall also be entitled to
participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that his position, title,
tenure, salary, age, health and other qualifications make him eligible
to participate. The Company does not guarantee the adoption or
continuance of any particular employee benefit plan or program during
the term of this Agreement, and Executive's participation in any such
plan or program shall be subject to the provisions, rules and
regulations applicable thereto. In addition to the normal employee
benefit programs of the Company, Executive shall be eligible for
reimbursement or direct payment of expenses incurred for additional
personal life insurance policies representing an aggregate policy
amount of $2,000,000 and additional disability insurance premiums not
to exceed $10,000 in each calendar year.
4.03 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's
normal policies for expense verification.
5. Confidential Information. Except as permitted or directed by the Company's
Board of Directors, during the term of this Agreement and for a period of
five years thereafter, Executive shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course
of the business of the Company) any confidential or secret knowledge or
information of the Company which Executive has acquired or become
acquainted with or will acquire or become acquainted with prior to the
termination of the period of his employment by the Company (including
employment by the Company or any affiliated companies prior to the date of
this Agreement), whether developed by himself or by others, concerning any
trade secrets, confidential or secret designs, processes, formulae, plans,
devices or material (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes
a unique and valuable asset of the Company and represents a substantial
investment of time and expense by the Company and its predecessors, and
that any disclosure or other use of such knowledge or information other
than for the sole benefit of the Company would be wrongful and would
<PAGE>
Medi-Ject Corporation
Employment Agreement
Page 3 of 9
cause irreparable harm to the Company. Both during and after the term of
this Agreement, Executive will refrain from any acts or omissions that
would reduce the value of such knowledge or information to the Company. The
foregoing obligations of confidentiality, however, shall not apply to any
knowledge or information which is now published or which subsequently
becomes generally publicly known in the form in which it was obtained from
the Company, other than as a direct or indirect result of the breach of
this Agreement by Executive.
6. Ventures. During the term of this Agreement, it is anticipated that
Executive will be engaged in or associated with the planning and
implementing of projects, programs and ventures involving the Company and
third parties, and Executive hereby expressly acknowledges and agrees that
all rights in such projects, programs and ventures shall belong to the
Company. Except as formally approved by the Company's Board of Directors,
Executive shall not be entitled to any interest in such projects, programs
and ventures or to any commission, finder's fee or other compensation in
connection therewith, other than the salary and compensation to be paid to
Executive as provided in this Agreement, described in Section 4.01 of this
Agreement.
7. Noncompetition and Nonsolicitation Covenants.
7.01 Agreement Not to Compete. Executive agrees that, during the term of
his employment by the Company he shall not, directly or indirectly,
engage in competition with the Company in any manner or capacity
(e.g., as an advisor, principal, agent, partner, officer, director,
stockholder, employee, member of any association, or otherwise) in any
phase of the business that the Company is conducting during the term
of this Agreement, including the design, development, manufacture,
distribution, marketing, leasing or selling of accessories, devices,
or systems related to the products or services being sold by the
Company.
7.02 Geographic Extent of Covenant. The obligations of Executive under
Section 7.01 shall apply to any geographic area in which the Company:
(a) has engaged in business during the term of this Agreement through
production, promotional sales or marketing activity, or
otherwise; or
(b) has otherwise established its goodwill, business reputation, or
any customer or supplier relations.
7.03 Limitation on Covenant. Ownership by Executive, as a passive
investment, of less than one percent (1%) of the outstanding shares of
capital stock of any corporation listed on a national securities
exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 7.
<PAGE>
Medi-Ject Corporation
Employment Agreement
Page 4 of 9
7.04 Nonsolicitation and Noninterference. During the term of this Agreement
and for a period of two years thereafter, Executive shall not:
(a) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere adversely with
the relationship between any such employee and the Company;
(b) induce or attempt to induce any employee of the Company to work
for, render services to, provide advise to or supply confidential
business information or trade secrets of the Company to any third
person, firm or corporation; or
(c) induce or attempt to induce any customer, supplier, licensee,
licensor or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the
relationship between any such customer, supplier, licensee,
licensor or other business relation and the Company.
7.05 Indirect Competition and Interference. Executive further agrees that,
during the term of this Agreement and, solely with respect to Section
7.04, the period covered by Section 7.04, he will not, directly or
indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the
above provisions of this Section 7 if such activity were carried out
by Executive, either directly or indirectly; and, in particular,
Executive agrees that he will not, directly or indirectly, induce any
employee of the Company to carry out, directly or indirectly, any such
activity.
8. Patent and Related Matters.
8.01 Disclosure and Assignment. Executive will promptly disclose in writing
to the Company complete information concerning each and every
invention, discovery, improvement, device, design, apparatus,
practice, process, method or product, whether patentable or not, made,
developed, perfected, devised, conceived or first reduced to practice
by Executive, either solely or in collaboration with others, during
the term of this Agreement, or within six months thereafter, whether
or not during regular working hours, relating either directly or
indirectly to the business, products, practices, or techniques of the
Company (hereinafter referred to as "Developments"). Executive, to the
extent that he has the legal right to do so, hereby acknowledges that
any and all of said Developments are the property of the Company and
hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments. Without limiting the foregoing, any and all original
works of authorship which are created by Executive (solely or jointly
with others) within the scope of Executive's employment and which are
protectable by copyright law shall be deemed "works made for hire," as
that term is defined in the U.S. Copyright Act (17 U.S.C. Section
101).
<PAGE>
Medi-Ject Corporation
Employment Agreement
Page 5 of 9
8.02 Future Developments. As to any future Developments made by Executive
that relate to the business, products or practices of the Company and
that are first conceived or reduced to practice during the term of
this Agreement, or within six months thereafter, but that are claimed
for any reason to belong to an entity or person other than the
Company, Executive will promptly disclose the same in writing to the
Company and shall not disclose the same to others if the Company,
within twenty (20) days thereafter, shall claim ownership of such
Developments under the terms of this Agreement. If the Company makes
such claim, Executive agrees that, insofar as the rights (if any) of
Executive are involved, it will be settled by arbitration in
accordance with the rules of the American Arbitration Association. The
locale of the arbitration shall be Minneapolis, Minnesota (or other
locale convenient to the Company's principal executive offices). If
the Company makes no such claim, Executive hereby acknowledges that
the Company has made no promise to receive and hold in confidence any
such information disclosed by Executive.
8.03 Limitation on Sections 8.01 and 8.02. The provisions of Sections 8.01
and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on Executive's own time;
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information;
(c) such Development does not relate:
(i) directly to the business of the Company; or
(ii) to the Company's actual or demonstrable anticipated
research;
(d) such Development does not result from any work performed by
Executive for the Company.
8.04 Assistance of Executive. Upon request and without further compensation
therefor, but at no expense to Executive, and whether during the term
of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful
oaths and the giving of testimony, that in the opinion of the Company,
its successors and assigns may be necessary or desirable in obtaining,
sustaining, reissuing, extending and enforcing United States and
foreign Letters Patent, including, but not limited to, design patents,
on any and all of such Developments, and for perfecting, affirming and
recording the Company's complete ownership and title thereto, and to
cooperate otherwise in all proceedings and matters relating thereto.
8.05 Records. Executive will keep complete, accurate and authentic
accounts, notes, data and records of all Developments in the manner
and form requested by the Company.
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Medi-Ject Corporation
Employment Agreement
Page 6 of 9
Such accounts, notes, data and records shall be the property of the
Company, and, upon its request, Executive will promptly surrender the
same to it or, if not previously surrendered upon its request or
otherwise, Executive will surrender the same, and all copies thereof,
to the Company upon the conclusion of his employment.
8.06 Obligations, Restrictions and Limitations. Executive understands that
the Company may enter into agreements or arrangements with agencies of
the United States Government, and that the Company may be subject to
laws and regulations which impose obligations, restrictions and
limitations on it with respect to inventions and patents that may be
acquired by it or that may be conceived or developed by employees,
consultants or other agents rendering services to it. Executive agrees
that he shall be bound by all such obligations, restrictions and
limitations applicable to any such invention conceived or developed by
him during the term of this Agreement and shall take any and all
further action that may be required to discharge such obligations and
to comply with such restrictions and limitations.
9. Termination.
9.01 Grounds for Termination. This Agreement shall terminate prior to the
expiration of the initial term set forth in Section 2 or any extension
thereof in the event that at any time during the initial term or any
extension thereof:
(a) Executive shall die;
(b) the Board of Directors of the Company shall determine that:
(i) Executive has become disabled;
(ii) Executive had breached this Agreement in any material
respect, which breach is not cured by Executive or is not
capable of being cured by Executive within thirty (30) days
after written notice of such breach is delivered to
Executive; or
(iii) Executive has engaged in willful and material misconduct,
including willful and material failure to perform his duties
as an officer or employee of the Company; or
(c) Executive is terminated by the Company (which may be with or
without cause), following not less than ninety days prior written
notice of such termination.
Notwithstanding any termination of this Agreement, Executive, in
consideration of his employment hereunder to the date of such
termination, shall remain bound by the provisions of this Agreement
that specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.
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Medi-Ject Corporation
Employment Agreement
Page 7 of 9
9.02 "Disability" Defined. The Board of Directors may determine that
Executive has become disabled, for the purpose of this Agreement, in
the event that Executive shall fail, because of illness or incapacity,
to render services of the character contemplated by this Agreement
over a period of ninety (90) days during any one hundred and eighty
(180) day period. The existence or nonexistence of grounds for
termination because of disability shall be made in good faith by the
Board of Directors after notice in writing given to Executive at least
thirty (30) days prior to such determination. During such thirty (30)
day period, Executive shall be permitted to make a presentation to the
Board of Directors for its consideration.
9.03 Surrender of Records and Property. Upon termination of his employment
with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda,
notes, notebooks, reports, data, tables, calculations or copies
thereof, which are the property of the Company or which relate in any
way to the business, products, practices or techniques of the Company,
and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in
whole or in part contain any trade secrets or confidential information
of the Company, which in any of these cases are in his possession or
under his control.
10. Miscellaneous.
10.01 Governing Law. This Agreement is made under and shall be governed by
and construed in accordance with the laws of the State of Minnesota.
10.02 Prior Agreements. This Agreement contains the entire Agreement of the
parties relating to the subject matter hereof and supersedes all prior
Agreements and understandings with respect to such subject matter, and
the parties hereto have made no Agreements, representations or
warranties relating to the subject matter of this Agreement which are
not set forth herein.
10.03 Withholding Taxes. The Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
10.04 Amendments. No amendment or modification of this Agreement shall be
deemed effective unless made in writing and signed by the parties
hereto.
10.05 No Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed
by the party against whom enforcement of the waiver or estoppel is
sought. Any written waiver shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific term
or
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Medi-Ject Corporation
Employment Agreement
Page 8 of 9
condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
10.06 Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted here from and
the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance
and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any
provision of this Agreement be in excess of that which is valid and
enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that
this Agreement be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express
terms) possible under applicable law.
10.07 Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party,
except that the Company may, without the consent of Executive, assign
its rights and obligations under this Agreement to any corporation,
firm or other business entity with or into which the Company may merge
or consolidate, or to which the Company may sell or transfer all or
substantially all of its assets, or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with, the Company. After any such
assignment by the Company, the Company shall be discharged from all
further liability hereunder and such assignee shall thereafter be
deemed to be the Company for the purposes of all provisions of this
Agreement including this Section 10.
10.08 Injunctive Relief. Executive agrees that it would be difficult to
compensate the Company fully for damages for any violation of the
provisions of this Agreement, including without limitation the
provisions of Sections 5, 7, 8 and 9.03. Accordingly, Executive
specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this
Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
<PAGE>
Medi-Ject Corporation
Employment Agreement
Page 9 of 9
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date set forth in the first paragraph.
MEDI-JECT CORPORATION EXECUTIVE
By:
------------------------------ -----------------------------------------
Franklin Pass
Its:
-----------------------------
<PAGE>
TERM AND COMPENSATION ADDENDUM FOR 2000
TO AMEND EMPLOYMENT AGREEMENT DATED DECEMBER 21, 1999,
AS OF DECEMBER 21, 1999
THIS AGREEMENT, effective as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company") and Franklin Pass, an
individual resident of the State of Minnesota (the "Executive"),
WHEREAS, the Company and the Executive are parties to an Employment Agreement
dated December 21, 1999, (the "Agreement"), and
PURSUANT to the recommendation of the Compensation Committee of the Board of
Directors on December 21, 1999, as approved by the full Board of Directors on
the same date, and
WHEREAS, the Company and the Executive each wish to agree to the following:
1. The Agreement term shall begin on December 21, 1999, and extend
through and include December 31, 2002.
2. Base compensation for year 2000 shall be $228,300.
3. A $25,000 cash bonus upon signing a development and distribution
agreement and/or product and technology rights agreement with either
Disetronic or Pharmacia & Upjohn.
All other terms of the Agreement and all amendments applicable thereto are to
remain in full force and effect.
AGREED:
MEDI-JECT CORPORATION: EXECUTIVE:
By:
------------------------------ -----------------------------------------
Franklin Pass
Its:
-----------------------------
Dated: Dated:
---------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.9
MEDI-JECT CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company"), and Lawrence M. Christian,
an individual resident of Ramsey County in the State of Minnesota ("Executive").
WHEREAS, the Company wishes to employ Executive to render services for the
Company on the terms and conditions set forth in this Agreement, and Executive
wishes to be retained and employed by the Company on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive accepts
such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. Term. Unless terminated at an earlier date in accordance with Section 9 of
this Agreement, the term of Executive's employment hereunder shall be for a
period commencing on the date of this Agreement and continuing as set forth
in the Term and Compensation Addendum applicable to each year.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement, Executive
agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. As of
the date of this Agreement, Executive has been elected to serve as
Vice President, Finance and Administration/ Chief Financial
Officer/Secretary, Treasurer of the Company, with responsibility for
managing the financial and administrative affairs of the Company.
3.02 Performance of Duties. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company
during the term of this Agreement. Executive hereby confirms that,
other than as set forth herein, he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and
that for the term of this Agreement, he will not render or perform
services for any other corporation, firm, entity or person that are
inconsistent with the provisions of this Agreement.
<PAGE>
4. Compensation.
4.01 Salary. Compensation shall be set by the Board of Directors subject to
adjustment annually by same Board of Directors and subject to any
additional incentive(s) and/or bonus(es) approved by same Board of
Directors as set out annually in the Term and Compensation Addendum
applicable to each year.
4.02 Participation in Benefit Plans. Executive shall also be entitled to
participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that his position, title,
tenure, salary, age, health and other qualifications make him eligible
to participate. The Company does not guarantee the adoption or
continuance of any particular employee benefit plan or program during
the term of this Agreement, and Executive's participation in any such
plan or program shall be subject to the provisions, rules and
regulations applicable thereto.
4.03 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's
normal policies for expense verification.
5. Confidential Information. Except as permitted or directed by the Company's
Board of Directors, during the term of this Agreement and for a period of
five years thereafter, Executive shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course
of the business of the Company) any confidential or secret knowledge or
information of the Company which Executive has acquired or become
acquainted with or will acquire or become acquainted with prior to the
termination of the period of his employment by the Company (including
employment by the Company or any affiliated companies prior to the date of
this Agreement), whether developed by himself or by others, concerning any
trade secrets, confidential or secret designs, processes, formulae, plans,
devices or material (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes
a unique and valuable asset of the Company and represents a substantial
investment of time and expense by the Company and its predecessors, and
that any disclosure or other use of such knowledge or information other
than for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. Both during and after the term of this
Agreement, Executive will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company. The
foregoing obligations of confidentiality, however, shall not apply to any
knowledge or information which is now published or which subsequently
becomes generally publicly known in the form in
<PAGE>
which it was obtained from the Company, other than as a direct or indirect
result of the breach of this Agreement by Executive.
6. Ventures. During the term of this Agreement, it is anticipated that
Executive will be engaged in or associated with the planning and
implementing of projects, programs and ventures involving the Company and
third parties, and Executive hereby expressly acknowledges and agrees that
all rights in such projects, programs and ventures shall belong to the
Company. Except as formally approved by the Company's Board of Directors,
Executive shall not be entitled to any interest in such projects, programs
and ventures or to any commission, finder's fee or other compensation in
connection therewith, other than the salary and compensation to be paid to
Executive as provided in this Agreement, described in Section 4.01 of this
Agreement.
7. Noncompetition and Nonsolicitation Covenants.
7.01 Agreement Not to Compete. Executive agrees that, during the term of
his employment by the Company he shall not, directly or indirectly,
engage in competition with the Company in any manner or capacity
(e.g., as an advisor, principal, agent, partner, officer, director,
stockholder, employee, member of any association, or otherwise) in any
phase of the business that the Company is conducting during the term
of this Agreement, including the design, development, manufacture,
distribution, marketing, leasing or selling of accessories, devices,
or systems related to the products or services being sold by the
Company.
7.02 Geographic Extent of Covenant. The obligations of Executive under
Section 7.01 shall apply to any geographic area in which the Company:
(a) has engaged in business during the term of this Agreement through
production, promotional sales or marketing activity, or
otherwise; or
(b) has otherwise established its goodwill, business reputation, or
any customer or supplier relations.
7.03 Limitation on Covenant. Ownership by Executive, as a passive
investment, of less than one percent (1 %) of the outstanding shares
of capital stock of any corporation listed on a national securities
exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 7.
7.04 Nonsolicitation and Noninterference. During the term of this Agreement
and for a period of two years thereafter, Executive shall not:
(a) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere adversely with
the relationship between any such employee and the Company;
<PAGE>
(b) induce or attempt to induce any employee of the Company to work
for, render services to, provide advise to or supply confidential
business information or trade secrets of the Company to any third
person, firm or corporation; or
(c) induce or attempt to induce any customer, supplier, licensee,
licensor or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the
relationship between any such customer, supplier, licensee,
licensor or other business relation and the Company.
7.05 Indirect Competition and Interference. Executive further agrees that,
during the term of this Agreement and, solely with respect to Section
7.04, the period covered by Section 7.04, he will not, directly or
indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the
above provisions of this Section 7 if such activity were carried out
by Executive, either directly or indirectly; and, in particular,
Executive agrees that he will not, directly or indirectly, induce any
employee of the Company to carry out, directly or indirectly, any such
activity.
8. Patent and Related Matters.
8.01 Disclosure and Assignment. Executive will promptly disclose in writing
to the Company complete information concerning each and every
invention, discovery, improvement, device, design, apparatus,
practice, process, method or product, whether patentable or not, made,
developed, perfected, devised, conceived or first reduced to practice
by Executive, either solely or in collaboration with others, during
the term of this Agreement, or within six months thereafter, whether
or not during regular working hours, relating either directly or
indirectly to the business, products, practices, or techniques of the
Company (hereinafter referred to as "Developments"). Executive, to the
extent that he has the legal right to do so, hereby acknowledges that
any and all of said Developments are the property of the Company and
hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments. Without limiting the foregoing, any and all original
works of authorship which are created by Executive (solely or jointly
with others) within the scope of Executive's employment and which are
protectable by copyright law shall be deemed "works made for hire," as
that term is defined in the U.S. Copyright Act (17 U.S.C. Section
101).
8.02 Future Developments. As to any future Developments made by Executive
that relate to the business, products or practices of the Company and
that are first conceived or reduced to practice during the term of
this Agreement, or within six months thereafter, but that are claimed
for any reason to belong to an entity or person other than the
Company, Executive will promptly disclose the same in writing to the
Company and shall not disclose the same to others if the
<PAGE>
Company, within twenty (20) days thereafter, shall claim ownership of
such Developments under the terms of this Agreement. If the Company
makes such claim, Executive agrees that, insofar as the rights (if
any) of Executive are involved, it will be settled by arbitration in
accordance with the rules of the American Arbitration Association. The
locale of the arbitration shall be Minneapolis, Minnesota (or other
locale convenient to the Company's principal executive offices). If
the Company makes no such claim, Executive hereby acknowledges that
the Company has made no promise to receive and hold in confidence any
such information disclosed by Executive.
8.03 Limitation on Sections 8.01 and 8.02. The provisions of Sections 8.01
and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on Executive's own time;
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information;
(c) such Development does not relate:
(i) directly to the business of the Company; or
(ii) to the Company's actual or demonstrable anticipated
research;
(d) such Development does not result from any work performed by
Executive for the Company.
8.04 Assistance of Executive. Upon request and without further compensation
therefor, but at no expense to Executive, and whether during the term
of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful
oaths and the giving of testimony, that in the opinion of the Company,
its successors and assigns may be necessary or desirable in obtaining,
sustaining, reissuing, extending and enforcing United States and
foreign Letters Patent, including, but not limited to, design patents,
on any and all of such Developments, and for perfecting, affirming and
recording the Company's complete ownership and title thereto, and to
cooperate otherwise in all proceedings and matters relating thereto.
8.05 Records. Executive will keep complete, accurate and authentic
accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and
records shall be the property of the Company, and, upon its request,
Executive will promptly surrender the same to it or, if not previously
surrendered upon its request or otherwise, Executive will surrender
the same, and all copies thereof, to the Company upon the conclusion
of his employment.
<PAGE>
8.06 Obligations, Restrictions and Limitations. Executive understands that
the Company may enter into agreements or arrangements with agencies of
the United States Government, and that the Company may be subject to
laws and regulations which impose obligations, restrictions and
limitations on it with respect to inventions and patents that may be
acquired by it or that may be conceived or developed by employees,
consultants or other agents rendering services to it. Executive agrees
that he shall be bound by all such obligations, restrictions and
limitations applicable to any such invention conceived or developed by
him during the term of this Agreement and shall take any and all
further action that may be required to discharge such obligations and
to comply with such restrictions and limitations.
9. Termination.
9.01 Grounds for Termination. This Agreement shall terminate prior to the
expiration of the initial term set forth in Section 2 or any extension
thereof in the event that at any time during the initial term or any
extension thereof:
(a) Executive shall die;
(b) the Board of Directors of the Company shall determine that:
(i) Executive has become disabled;
(ii) Executive had breached this Agreement in any material
respect, which breach is not cured by Executive or is not
capable of being cured by Executive within thirty (30) days
after written notice of such breach is delivered to
Executive; or
(iii) Executive has engaged in willful and material misconduct,
including willful and material failure to perform his duties
as an officer or employee of the Company; or
(c) Executive is terminated by the Company (which may be with or
without cause), following not less than ninety days prior written
notice of such termination.
Notwithstanding any termination of this Agreement, Executive, in
consideration of his employment hereunder to the date of such
termination, shall remain bound by the provisions of this Agreement
that specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.
9.02 "Disability" Defined. The Board of Directors may determine that
Executive has become disabled, for the purpose of this Agreement, in
the event that Executive shall fail, because of illness or incapacity,
to render services of the character contemplated by this Agreement
over a period of ninety (90) days during any
<PAGE>
one hundred and eighty (180) day period. The existence or nonexistence
of grounds for termination because of disability shall be made in good
faith by the Board of Directors after notice in writing given to
Executive at least thirty (30) days prior to such determination.
During such thirty (30) day period, Executive shall be permitted to
make a presentation to the Board of Directors for its consideration.
9.03 Surrender of Records and Property. Upon termination of his employment
with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda,
notes, notebooks, reports, data, tables, calculations or copies
thereof, which are the property of the Company or which relate in any
way to the business, products, practices or techniques of the Company,
and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in
whole or in part contain any trade secrets or confidential information
of the Company, which in any of these cases are in his possession or
under his control.
10. Miscellaneous.
10.01 Governing Law. This Agreement is made under and shall be governed by
and construed in accordance with the laws of the State of Minnesota.
10.02 Prior Agreements. This Agreement contains the entire Agreement of the
parties relating to the subject matter hereof and supersedes all prior
Agreements and understandings with respect to such subject matter, and
the parties hereto have made no Agreements, representations or
warranties relating to the subject matter of this Agreement which are
not set forth herein.
10.03 Withholding Taxes. The Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
10.04 Amendments. No amendment or modification of this Agreement shall be
deemed effective unless made in writing and signed by the parties
hereto.
10.05 No Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed
by the party against whom enforcement of the waiver or estoppel is
sought. Any written waiver shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
<PAGE>
10.06 Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted here from and
the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance
and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any
provision of this Agreement be in excess of that which is valid and
enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that
this Agreement be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express
terms) possible under applicable law.
10.07 Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party,
except that the Company may, without the consent of Executive, assign
its rights and obligations under this Agreement to any corporation,
firm or other business entity with or into which the Company may merge
or consolidate, or to which the Company may sell or transfer all or
substantially all of its assets, or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with, the Company. After any such
assignment by the Company, the Company shall be discharged from all
further liability hereunder and such assignee shall thereafter be
deemed to be the Company for the purposes of all provisions of this
Agreement including this Section 10.
10.08 Injunctive Relief. Executive agrees that it would be difficult to
compensate the Company fully for damages for any violation of the
provisions of this Agreement, including without limitation the
provisions of Sections 5, 7, 8 and 9.03. Accordingly, Executive
specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this
Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date set forth in the first paragraph.
MEDI-JECT CORPORATION EXECUTIVE
By:
------------------------------ -----------------------------------
------------------------------ Lawrence M. Christian
Its:
-----------------------------
<PAGE>
TERM AND COMPENSATION ADDENDUM FOR 2000
TO AMEND EMPLOYMENT AGREEMENT DATED DECEMBER 21, 1999,
AS OF DECEMBER 21, 1999
THIS AGREEMENT, effective as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company") and Lawrence Christian, an
individual resident of the State of Minnesota (the "Executive"),
WHEREAS, the Company and the Executive are parties to an Employment Agreement
dated December 21, 1999 (the "Agreement"), and
PURSUANT to the recommendation of the Compensation Committee of the Board of
Directors on December 21, 1999, as approved by the full Board of Directors on
the same date, and
WHEREAS, the Company and the Executive each wish to agree to the following:
1. The Agreement term shall be for twelve (12) months continuing each day
on a rolling twelve (12) month basis.
2. Base compensation for year 2000 shall be $102,000.
3. A $25,000 cash bonus upon signing a development and distribution
agreement and/or product and technology rights agreement with either
Disetronic or Pharmacia & Upjohn.
4. A bonus payable upon closing a merger agreement with Permatec
comprising two (2) parts:
Part A: A $12,000 cash bonus upon closing of the merger
agreement. Subject bonus to be payable 25% at close of
business on the next business day following the closing day
of subject merger and 25% payable on the last business day
of each of the next three (3) successive calendar quarters.
If employee termination occurs, for any reason, prior to
completion of the payout schedule, as stated above, all
amounts are due and payable as of the termination date.
Part B: A 5,000 share stock option grant with grant date
established as closing date of subject merger described
above.
All other terms of the Agreement and all amendments applicable thereto are to
remain in full force and effect.
AGREED:
MEDI-JECT CORPORATION: EXECUTIVE:
By:
------------------------------ -----------------------------------------
Franklin Pass, Chairman & CEO Lawrence Christian
Dated: Dated:
---------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.11.1
MEDI-JECT CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company"), and Peter L. Sadowski, an
individual resident of Ramsey County in the State of Minnesota ("Executive").
WHEREAS, the Company wishes to employ Executive to render services for the
Company on the terms and conditions set forth in this Agreement, and Executive
wishes to be retained and employed by the Company on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive accepts
such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. Term. Unless terminated at an earlier date in accordance with Section 9 of
this Agreement, the term of Executive's employment hereunder shall be for a
period commencing on the date of this Agreement and continuing as set forth
in the Term and Compensation Addendum applicable to each year.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement, Executive
agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. As of
the date of this Agreement, Executive has been elected to serve as
Executive Vice President and Chief Technology Officer.
3.02 Performance of Duties. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company
during the term of this Agreement. Executive hereby confirms that,
other than as set forth herein, he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and
that for the term of this Agreement, he will not render or perform
services for any other corporation, firm, entity or person that are
inconsistent with the provisions of this Agreement.
<PAGE>
4. Compensation.
4.01 Salary. Compensation shall be set by the Board of Directors subject to
adjustment annually by same Board of Directors and subject to any
additional incentive(s) and/or bonus(es) approved by same Board of
Directors as set out annually in the Term and Compensation Addendum
applicable to each year.
4.02 Participation in Benefit Plans. Executive shall also be entitled to
participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that his position, title,
tenure, salary, age, health and other qualifications make him eligible
to participate. The Company does not guarantee the adoption or
continuance of any particular employee benefit plan or program during
the term of this Agreement, and Executive's participation in any such
plan or program shall be subject to the provisions, rules and
regulations applicable thereto.
4.03 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's
normal policies for expense verification.
5. Confidential Information. Except as permitted or directed by the Company's
Board of Directors, during the term of this Agreement and for a period of
five years thereafter, Executive shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course
of the business of the Company) any confidential or secret knowledge or
information of the Company which Executive has acquired or become
acquainted with or will acquire or become acquainted with prior to the
termination of the period of his employment by the Company (including
employment by the Company or any affiliated companies prior to the date of
this Agreement), whether developed by himself or by others, concerning any
trade secrets, confidential or secret designs, processes, formulae, plans,
devices or material (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes
a unique and valuable asset of the Company and represents a substantial
investment of time and expense by the Company and its predecessors, and
that any disclosure or other use of such knowledge or information other
than for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. Both during and after the term of this
Agreement, Executive will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company. The
foregoing obligations of confidentiality, however, shall not apply to any
knowledge or information which is now published or which subsequently
becomes generally publicly known in the form in
<PAGE>
which it was obtained from the Company, other than as a direct or indirect
result of the breach of this Agreement by Executive.
6. Ventures. During the term of this Agreement, it is anticipated that
Executive will be engaged in or associated with the planning and
implementing of projects, programs and ventures involving the Company and
third parties, and Executive hereby expressly acknowledges and agrees that
all rights in such projects, programs and ventures shall belong to the
Company. Except as formally approved by the Company's Board of Directors,
Executive shall not be entitled to any interest in such projects, programs
and ventures or to any commission, finder's fee or other compensation in
connection therewith, other than the salary and compensation to be paid to
Executive as provided in this Agreement, described in Section 4.01 of this
Agreement.
7. Noncompetition and Nonsolicitation Covenants.
7.01 Agreement Not to Compete. Executive agrees that, during the term of
his employment by the Company he shall not, directly or indirectly,
engage in competition with the Company in any manner or capacity
(e.g., as an advisor, principal, agent, partner, officer, director,
stockholder, employee, member of any association, or otherwise) in any
phase of the business that the Company is conducting during the term
of this Agreement, including the design, development, manufacture,
distribution, marketing, leasing or selling of accessories, devices,
or systems related to the products or services being sold by the
Company.
7.02 Geographic Extent of Covenant. The obligations of Executive under
Section 7.01 shall apply to any geographic area in which the Company:
(a) has engaged in business during the term of this Agreement through
production, promotional sales or marketing activity, or
otherwise; or
(b) has otherwise established its goodwill, business reputation, or
any customer or supplier relations.
7.03 Limitation on Covenant. Ownership by Executive, as a passive
investment, of less than one percent (1%) of the outstanding shares of
capital stock of any corporation listed on a national securities
exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 7.
7.04 Nonsolicitation and Noninterference. During the term of this Agreement
and for a period of two years thereafter, Executive shall not:
(a) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere adversely with
the relationship between any such employee and the Company;
<PAGE>
(b) induce or attempt to induce any employee of the Company to work
for, render services to, provide advise to or supply confidential
business information or trade secrets of the Company to any third
person, firm or corporation; or
(c) induce or attempt to induce any customer, supplier, licensee,
licensor or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the
relationship between any such customer, supplier, licensee,
licensor or other business relation and the Company.
7.05 Indirect Competition and Interference. Executive further agrees that,
during the term of this Agreement and, solely with respect to Section
7.04, the period covered by Section 7.04, he will not, directly or
indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the
above provisions of this Section 7 if such activity were carried out
by Executive, either directly or indirectly; and, in particular,
Executive agrees that he will not, directly or indirectly, induce any
employee of the Company to carry out, directly or indirectly, any such
activity.
8. Patent and Related Matters.
8.01 Disclosure and Assignment. Executive will promptly disclose in writing
to the Company complete information concerning each and every
invention, discovery, improvement, device, design, apparatus,
practice, process, method or product, whether patentable or not, made,
developed, perfected, devised, conceived or first reduced to practice
by Executive, either solely or in collaboration with others, during
the term of this Agreement, or within six months thereafter, whether
or not during regular working hours, relating either directly or
indirectly to the business, products, practices, or techniques of the
Company (hereinafter referred to as "Developments"). Executive, to the
extent that he has the legal right to do so, hereby acknowledges that
any and all of said Developments are the property of the Company and
hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments. Without limiting the foregoing, any and all original
works of authorship which are created by Executive (solely or jointly
with others) within the scope of Executive's employment and which are
protectable by copyright law shall be deemed "works made for hire," as
that term is defined in the U.S. Copyright Act (17 U.S.C. Section
101).
8.02 Future Developments. As to any future Developments made by Executive
that relate to the business, products or practices of the Company and
that are first conceived or reduced to practice during the term of
this Agreement, or within six months thereafter, but that are claimed
for any reason to belong to an entity or person other than the
Company, Executive will promptly disclose the same in writing to the
Company and shall not disclose the same to others if the
<PAGE>
Company, within twenty (20) days thereafter, shall claim ownership of
such Developments under the terms of this Agreement. If the Company
makes such claim, Executive agrees that, insofar as the rights (if
any) of Executive are involved, it will be settled by arbitration in
accordance with the rules of the American Arbitration Association. The
locale of the arbitration shall be Minneapolis, Minnesota (or other
locale convenient to the Company's principal executive offices). If
the Company makes no such claim, Executive hereby acknowledges that
the Company has made no promise to receive and hold in confidence any
such information disclosed by Executive.
8.03 Limitation on Sections 8.01 and 8.02. The provisions of Sections 8.01
and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on Executive's own time;
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information;
(c) such Development does not relate:
(i) directly to the business of the Company; or
(ii) to the Company's actual or demonstrable anticipated
research;
(d) such Development does not result from any work performed by
Executive for the Company.
8.04 Assistance of Executive. Upon request and without further compensation
therefor, but at no expense to Executive, and whether during the term
of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful
oaths and the giving of testimony, that in the opinion of the Company,
its successors and assigns may be necessary or desirable in obtaining,
sustaining, reissuing, extending and enforcing United States and
foreign Letters Patent, including, but not limited to, design patents,
on any and all of such Developments, and for perfecting, affirming and
recording the Company's complete ownership and title thereto, and to
cooperate otherwise in all proceedings and matters relating thereto.
8.05 Records. Executive will keep complete, accurate and authentic
accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and
records shall be the property of the Company, and, upon its request,
Executive will promptly surrender the same to it or, if not previously
surrendered upon its request or otherwise, Executive will surrender
the same, and all copies thereof, to the Company upon the conclusion
of his employment.
<PAGE>
8.06 Obligations, Restrictions and Limitations. Executive understands that
the Company may enter into agreements or arrangements with agencies of
the United States Government, and that the Company may be subject to
laws and regulations which impose obligations, restrictions and
limitations on it with respect to inventions and patents that may be
acquired by it or that may be conceived or developed by employees,
consultants or other agents rendering services to it. Executive agrees
that he shall be bound by all such obligations, restrictions and
limitations applicable to any such invention conceived or developed by
him during the term of this Agreement and shall take any and all
further action that may be required to discharge such obligations and
to comply with such restrictions and limitations.
9. Termination.
9.01 Grounds for Termination. This Agreement shall terminate prior to the
expiration of the initial term set forth in Section 2 or any extension
thereof in the event that at any time during the initial term or any
extension thereof:
(a) Executive shall die;
(b) the Board of Directors of the Company shall determine that:
(i) Executive has become disabled;
(ii) Executive had breached this Agreement in any material
respect, which breach is not cured by Executive or is not
capable of being cured by Executive within thirty (30) days
after written notice of such breach is delivered to
Executive; or
(iii) Executive has engaged in willful and material misconduct,
including willful and material failure to perform his duties
as an officer or employee of the Company; or
(c) Executive is terminated by the Company (which may be with or
without cause), following not less than ninety days prior written
notice of such termination.
Notwithstanding any termination of this Agreement, Executive, in
consideration of his employment hereunder to the date of such
termination, shall remain bound by the provisions of this Agreement
that specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.
9.02 "Disability" Defined. The Board of Directors may determine that
Executive has become disabled, for the purpose of this Agreement, in
the event that Executive shall fail, because of illness or incapacity,
to render services of the character contemplated by this Agreement
over a period of ninety (90) days during any
<PAGE>
one hundred and eighty (180) day period. The existence or nonexistence
of grounds for termination because of disability shall be made in good
faith by the Board of Directors after notice in writing given to
Executive at least thirty (30) days prior to such determination.
During such thirty (30) day period, Executive shall be permitted to
make a presentation to the Board of Directors for its consideration.
9.03 Surrender of Records and Property. Upon termination of his employment
with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda,
notes, notebooks, reports, data, tables, calculations or copies
thereof, which are the property of the Company or which relate in any
way to the business, products, practices or techniques of the Company,
and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in
whole or in part contain any trade secrets or confidential information
of the Company, which in any of these cases are in his possession or
under his control.
10. Miscellaneous.
10.01 Governing Law. This Agreement is made under and shall be governed by
and construed in accordance with the laws of the State of Minnesota.
10.02 Prior Agreements. This Agreement contains the entire Agreement of the
parties relating to the subject matter hereof and supersedes all prior
Agreements and understandings with respect to such subject matter, and
the parties hereto have made no Agreements, representations or
warranties relating to the subject matter of this Agreement which are
not set forth herein.
10.03 Withholding Taxes. The Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
10.04 Amendments. No amendment or modification of this Agreement shall be
deemed effective unless made in writing and signed by the parties
hereto.
10.05 No Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed
by the party against whom enforcement of the waiver or estoppel is
sought. Any written waiver shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
<PAGE>
10.06 Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted here from and
the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance
and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any
provision of this Agreement be in excess of that which is valid and
enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that
this Agreement be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express
terms) possible under applicable law.
10.07 Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party,
except that the Company may, without the consent of Executive, assign
its rights and obligations under this Agreement to any corporation,
firm or other business entity with or into which the Company may merge
or consolidate, or to which the Company may sell or transfer all or
substantially all of its assets, or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with, the Company. After any such
assignment by the Company, the Company shall be discharged from all
further liability hereunder and such assignee shall thereafter be
deemed to be the Company for the purposes of all provisions of this
Agreement including this Section 10.
10.08 Injunctive Relief. Executive agrees that it would be difficult to
compensate the Company fully for damages for any violation of the
provisions of this Agreement, including without limitation the
provisions of Sections 5, 7, 8 and 9.03. Accordingly, Executive
specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this
Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date set forth in the first paragraph.
MEDI-JECT CORPORATION EXECUTIVE
By:
------------------------------ -----------------------------------
------------------------------ Peter L. Sadowski
Its:
-----------------------------
<PAGE>
TERM AND COMPENSATION ADDENDUM FOR 2000
TO AMEND EMPLOYMENT AGREEMENT DATED DECEMBER 21, 1999,
AS OF DECEMBER 21, 1999
THIS AGREEMENT, effective as of December 21, 1999, by and between Medi-Ject
Corporation, a Minnesota corporation (the "Company") and Peter Sadowski, an
individual resident of the State of Minnesota (the "Executive"),
WHEREAS, the Company and the Executive are parties to an Employment Agreement
dated December 21, 1999 (the "Agreement"), and
PURSUANT to the recommendation of the Compensation Committee of the Board of
Directors on December 21, 1999, as approved by the full Board of Directors on
the same date, and
WHEREAS, the Company and the Executive each wish to agree to the following:
1. The Agreement term shall begin on December 21, 1999, and extend
through and include December 31, 2002.
2. Base compensation for year 2000 shall be $135,820.
3. A $25,000 cash bonus upon signing a development and distribution
agreement and/or product and technology rights agreement with either
Disetronic or Pharmacia & Upjohn.
4. A bonus payable upon closing a merger agreement with Permatec
comprising two (2) parts:
Part A: A $17,000 cash bonus upon closing of the merger agreement.
Subject bonus to be payable 25% at close of business on the
next business day following the closing day of subject merger
and 25% payable on the last business day of each of the next
three (3) successive calendar quarters.
If employee termination occurs, for any reason, prior to
completion of the payout schedule, as stated above, all
amounts are due and payable as of the termination date.
Part B: A 5,000 share stock option grant with grant date
established as closing date of subject merger described
above.
All other terms of the Agreement and all amendments applicable thereto are to
remain in full force and effect.
AGREED:
MEDI-JECT CORPORATION: EXECUTIVE:
By:
------------------------------ -----------------------------------------
Franklin Pass, Chairman & CEO Peter Sadowski
Dated: Dated:
---------------------------- ----------------------------------
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors and Shareholders
Medi-Ject Corporation:
We consent to incorporation by reference in the registration statements (Nos.
333-20389 and 333-40483) on Form S-8 of Medi-Ject Corporation of our report
dated February 18, 2000, relating to the balance sheets of Medi-Ject Corporation
as of December 31, 1998 and 1999 and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999, which report is included in the annual report on
Form 10-K of Medi-Ject Corporation.
/s/ KPMG LLP
Minneapolis, Minnesota
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED AND
UNAUDITED INTERNAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 85,136
<SECURITIES> 0
<RECEIVABLES> 192,301
<ALLOWANCES> 25,000
<INVENTORY> 429,472
<CURRENT-ASSETS> 705,172
<PP&E> 2,406,878
<DEPRECIATION> 1,404,324
<TOTAL-ASSETS> 2,010,136
<CURRENT-LIABILITIES> 957,281
<BONDS> 0
0
10
<COMMON> 14,247
<OTHER-SE> 1,038,596
<TOTAL-LIABILITY-AND-EQUITY> 2,010,136
<SALES> 2,100,735
<TOTAL-REVENUES> 3,547,880<F1>
<CGS> 1,785,464
<TOTAL-COSTS> 5,307,372
<OTHER-EXPENSES> 154,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,427
<INCOME-PRETAX> (3,703,439)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,703,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,703,439)
<EPS-BASIC> (2.70)
<EPS-DILUTED> (2.70)
<FN>
<F1>Includes $66,018 of interest income.
</FN>
</TABLE>
